17 February 2021
If your business buys depreciable assets to use in the business during the 2021 income tax year, you might qualify for the:
- Instant asset write-off;
- Full expensing of depreciating assets deduction; or
- Backing business investment measure.
Let’s take a look at what these measures do, how they work and what the eligibility criteria for businesses is.
Instant asset write-off
The instant asset write-off is available for businesses with an aggregated turnover of less than $500 million. You need to have purchased assets costing less than $150,000 before 31 December 2020 and first used or installed the assets ready for use by 30 June 2021.
Businesses that qualify can deduct the total cost of each asset costing less than $150,000. Where an amount is immediately deductible under both the temporary full expensing and the instant asset write-off, the temporary full expensing measure takes precedence.
The instant asset write-off deduction is available for the purchase of both new and second hand assets.
Businesses that bought assets costing $150,000 or more in 2021, bought assets costing more than $1,000 after 1 January 2021 or bought assets costing less than $150,000 before 1 January 2021 but did not start using or have the assets installed ready for use by 30 June 2021, will not qualify for the instant asset write-off in 2021.
Temporary full expensing of depreciable assets (FEDA)
Temporary full expensing of depreciable assets (FEDA) is available for businesses with an aggregated turnover of less than $5 billion. If your business qualifies, you can fully expense the cost (no limit) of any new depreciating assets you have bought after 6 October 2020 provided you have used or installed the assets ready for use by 30 June 2021.
The cost of improvements to the assets can also be expensed under FEDA. If your business qualifies for FEDA, you can choose whether you want to apply FEDA on an asset by asset basis. If you elect not to apply FEDA, you can potentially spread your depreciation deductions over several years.
For small and medium sized businesses with an aggregated turnover of less than $50 million, FEDA will also be available on the purchase of second hand depreciable assets. Pursuant to FEDA, small business entities with an aggregated turnover of less than $10 million must deduct the whole balance of their small business pool at 30 June 2021.
Backing business investment measure
The backing business investment measure allows businesses with an aggregated turnover of less than $500 million that buy new assets costing $150,000 or more to accelerate depreciation.
If your business qualifies, you can deduct 50% of the cost of the asset in the first year of use or installation, and the balance will be depreciated over the effective life of the asset.
Small business entities (SBEs) with an aggregated turnover of less than $10 million that buy assets costing $150,000 or more can claim 57.5% of the cost of the asset in the first year the asset is added to the small business pool. In subsequent years, the remaining balance in the pool will be depreciated at 30%.
A taxpayer that claims a deduction under the instant asset write-off or the full expensing of depreciating assets measures cannot use the backing business investment measure.