If you’ve purchased a business depreciating asset after 12 March 2020 which costs more than $150,000, then these new accelerated depreciation measures impact you.
From 12 March 2020, for each new asset purchased, the accelerated depreciation deduction applies in the income year that the asset is first used or installed ready for use. You claim the deduction when lodging your tax return for the income year. The usual depreciation rules apply in the subsequent income years that the asset is held.
So what’s an eligible asset?
To be eligible to apply the accelerated rate of deduction, the depreciating asset must:
- be new and not previously held by another entity (other than as trading stock)
- be first held on or after 12 March 2020
- first used or first installed ready for use on or after 12 March 2020 until 30 June 2021
- not be an asset to which an entity has applied the instant asset write-off rules or
Eligible assets do not include:
- second-hand assets
- certain primary production assets
- buildings and other capital works
- assets you were committed to acquiring before 12 March 2020.
If accelerated depreciation is to be applied to the purchase of a passenger vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers, the cost of the vehicle that can be claimed under depreciation rules is limited to the car limit at that time ie $57,581 (for the 2020 financial year).
If you are a small business with a turnover of less than $10 million, and you use the simplified depreciation rules, those assets over the instant asset threshold ($150,000) which are eligible for the
accelerated depreciation are added to the general small business pool. You can deduct an amount equal to 57.5% (rather than 15%) of a new depreciating asset in the year you add it to the pool. In later years the asset will be depreciated under the general small business pool rules.
For example, Joan and Bruce own a company, NC Transport Solutions Pty Ltd, through which they operate a haulage business. NC Transport Solutions Pty Ltd has an annual turnover of $8 million for the 2019–20 income year. On 1 May 2020, Joan and Bruce purchase a new truck for $260,000, exclusive of GST, for use in their business.
Under past tax arrangements, NC Transport Solutions Pty Ltd would depreciate the truck using their general small business pool. This means that NC Transport Solutions Pty Ltd would deduct 15% of the asset’s value when they added it to the pool, leading to a tax deduction of $39,000 for the 2019–20 income year (assuming there are no other assets in the pool).
Under the new accelerated depreciation, NC Transport Solutions Pty Ltd will instead claim a deduction of 57.5% when they add it the pool, leading to a deduction of $149,500 for the 2019–20 income year.
Should you be considering using this strategy, please feel free to contact our office for further information.