Understanding your business’ eligibility for the extended instant asset write off

12 June 2020

The Federal Government has announced it will extend the $150,000 instant asset write off (IAWO) by six months to 31 December 2020.

While good news for business owners, determining your eligibility for the IAWO is complex and depends on your aggregated turnover. This requires:

  • An analysis of related entities to determine any affiliates and connected entities.
  • Understanding whether those entities carry on business.
  • Consideration of whether turnover should be annualised to reflect a part of a year that your business was not carried on due to the purchase or sale of businesses.

The graphic below shows the change in asset thresholds for entities with aggregated turnovers ranging from less than $10 million to less than $500 million, and how the threshold has changed over time. Eligibility to the IAWO depends on whether you are a small business entity (SBE) or medium sized businesses (MSB), which we will explore in more detail. Importantly, from 3 April 2019 an SBE or an MSB can be entitled to an IAWO.

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Small business entities

An SBE is broadly an entity that has an aggregated turnover of less than $10,000,000. The current law allows an SBE to use the IAWO where:

  • The cost of the asset falls below certain thresholds that have changed over time.
  • The asset was first used or was installed ready for use during the relevant threshold period.

The threshold for SBEs was increased from $30,000 to $150,000 for the period 12 March 2020 to 30 June 2020 and was due to revert to $1,000 from 1 July 2020. However, with the Government’s announcement, the $150,000 threshold will now continue to 31 December 2020.

It should be noted the rules defining an SBE are not simple, in particular, aggregated turnover includes the annual turnover of the entity, its affiliates and connected entities. An SBE elects into the simplified small business depreciation regime which provides for both the IAWO and for depreciation under a pooling system.

Medium sized businesses

MSBs are practically eligible for the IAWO from 3 April 2019.

For assets acquired from this time and first used or installed ready for use up to 11 March 2020, the threshold is $30,000. For assets first used or first installed ready for use between 12 March 2020 and 30 June 2020, the threshold is $150,000. With the Government’s announcement, this threshold will now continue to 31 December 2020.

In respect of assets acquired before 12 March 2020, an MSB is broadly an entity that is not an SBE, with an aggregated turnover of less than $50,000,000. As with SBEs, this includes the annual turnover of the entity, its affiliates and connected entities.

In respect of assets acquired from 12 March 2020, an MSB is defined as an entity that is not an SBE, with an aggregated turnover less than $500,000,000.

It is worth noting the depreciation rules for an MSB are not dependent on a choice. The IAWO applies automatically to assets of an MSB that come under the relevant threshold. Where the threshold is exceeded, the asset is depreciated in accordance with the general depreciation rules. These are the rules that apply to an entity that is not an SBE or is an SBE that has not chosen to apply simplified small business depreciation.

If you require further information or assistance understanding how your business can take advantage of the extended instant asset write off, please get in contact with the Tax Advisory team today.