The $150,000 Instant Asset Write Off will be coming to an end on December 31st. So what happens then? When trying to find out what happens after this date we have found lots of mixed information and confusing responses online. The following information provided by the Australian Taxation Office (ATO) will help to clear up what happens next and explain the temporary full expensing incentive.
What are the changes?
As part of the 2020–21 Budget, the government announced that it will support businesses and encourage new investment through a temporary full expensing incentive. Eligible businesses with an aggregated turnover of less than $5 billion can deduct 100% of the cost of new eligible depreciating assets that are first held, and first used or installed, between 7.30pm AEDT on 6 October 2020 (the 2020 Budget time) and 30 June 2022. For small and medium sized businesses (with aggregated turnover of less than $50 million), full expensing also applies to eligible second-hand assets. The aim of this incentive is to improve cash flow for qualifying businesses that purchase eligible assets and bring forward new investment to support the economic recovery.
Businesses can also deduct the full cost of improvements made during this period to depreciating assets, whether those assets were acquired before or after the 2020 Budget time.
Small businesses (with aggregated turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out of the regime continue to be suspended.
What Assets Qualify?
A depreciating asset qualifies for full expensing if, between 7.30pm on 6 October 2020 (the 2020 Budget time) and 30 June 2022, the entity:
- starts to hold the asset; and
- starts to use the asset, or have it installed ready for use, for a taxable purpose.
No balancing adjustment can happen to the asset in the income year (e.g. it is not sold in the year in which the full expensing is applied)
What does this mean for the current instant asset write-off incentive?
This change will also extend the time by which assets that qualify for the existing enhanced instant asset write-off incentive must be first used or installed ready for use for a taxable purpose by 6 months, to 30 June 2021.
Does a commercial solar system qualify?
Yes, a solar system is considered a depreciating asset. This is because they generally have their own function which is separate to that of the building on which they are installed. The panels can also generally be removed without causing significant damage to the building.
If you have been thinking about installing a commercial solar system to reduce operating costs for your business there has never been a better time. Get in touch with us today for a free consultation and quote.