COVID-19 – how do the changes to the instant asset write-off work and what is the backing business investment incentive?

As a part of the laws setting out the Federal Government’s response to coronavirus:

• the instant asset write-off now applies to assets that cost less than $150,000 (rather than $30,000) and is available to businesses with aggregated turnover of less than $500 million (rather than $10 million)
• the ‘backing business investment’ (BBI) incentive has been introduced, which allows businesses to claim a deduction for part of the cost of depreciable assets that cost over $150,000.

How does the instant asset write-off work and does it apply to my business?

Businesses that qualify for the instant asset write-off can claim an immediate deduction for the cost of depreciable assets that are installed and ready for use between 12 March 2020 and 30 June 2020.

Businesses can apply the instant asset write-off by claiming a deduction for 100% of the cost of the eligible asset if:

1. they have an aggregated turnover of less than $500 million in the 2019 or 2020 income years – the aggregated turnover is the total income of the business and any connected entities and affiliates
2. the depreciable asset cost less than $150,000
3. the depreciable asset is used or installed and ready for use in the business between 12 March 2020 and 30 June 2020.

When determining the cost of the depreciable asset, include any costs incurred in transporting, installing, or preparing the asset to use in the business.

For example, if you purchase a new vehicle that needs particular fittings so it can be used in the business, the cost of those fittings would be included in the cost of the asset for the purposes of the instant asset write-off.

To meet the third requirement, it will not be enough for an asset to only be purchased by 30 June 2020 – it also needs to be installed and ready for use in the business by that date.

For example, if you purchase a trailer that is not delivered by 30 June 2020, it will not be ‘installed and ready for use’ in the business. Similarly, if the trailer is delivered, but hasn’t yet been fitted out for its particular purpose, that trailer will not be ‘installed and ready for use’.

What is the BBI incentive and how does it work?

The BBI incentive allows businesses to claim a deduction of up to 57.5% of the cost of depreciable assets that cost $150,000 or more.

The BBI incentive applies to depreciable assets that:

1. cost $150,000 or more
2. are either:
   • purchased and installed ready for use between 12 March 2020 and 30 June 2020
   • purchased after 12 March 2020 and installed ready for use in the 2021 income year
3. are not second-hand assets, located outside Australia, or assets that are already subject to accelerated depreciation.

A common example of assets that are already subject to accelerated depreciation are fences and other primary production assets.

Where the asset is purchased and installed ready for use between 12 March 2020 and 30 June 2020, the deduction can be claimed in the 2020 income year.

If the business buys the asset after 12 March 2020 and it is installed ready for use in the business in the 2021 income year, the deduction can be claimed in that year.

Similar to the instant asset write off, the BBI incentive is available for entities whose aggregated turnover is less than $500 million. Businesses will be eligible for the BBI incentive if they are either:

1. small business entities that apply the simplified depreciation provisions (typically these are entities whose aggregated turnover is less than $10 million) – who can claim a deduction of 57.5% of the cost of the assets
2. entities whose aggregated turnover is between $10 million and $500 million – who can claim a deduction of 50% of the cost of the assets.

What happens to depreciable assets purchased before 12 March 2020?

If a business has entered into an agreement to buy an asset before 12 March 2020, the instant asset write-off and BBI incentive will not apply to that asset – there are specific provisions that exclude these assets.

Integrity provisions also prevent businesses from accessing the instant asset write-off and BBI incentive if they:

1. enter into an agreement to buy or construct a depreciable asset before 12 March 2020; and
2. cancel that agreement and enter into a new agreement after 12 March 2020.

Please contact a member of our team if you would like to discuss these incentives.