The Economic Stimulus Package: Instant asset write-off threshold increase explained

A key part of the government’s economic response to the coronavirus is to support business investment and cashflow by increasing the instant asset write off threshold and eligibility rules.

So what is the instant asset write-off (IAW) and how can it help your business? 

Claiming an immediate deduction

Put simply, the IAW provisions allow your business to claim an immediate tax deduction for the full cost of a business asset you buy. Normal depreciation requires you to deduct the cost against your business profits over several tax years. 

Under the new rules, you can claim a tax deduction in the same financial year you purchase new or second-hand plant and equipment costing under $150,000. 

The IAW is not a cash refund. You don’t get the amount you spend back from the ATO, but instead get the advantage of bringing forward a tax deduction you would normally receive over several tax years. 

A simple example is a plumber who buys a new $16,000 trailer for his company. Using the IAW he can claim an immediate tax deduction of $16,000, which in turn reduces his business profit so he pays less tax. 

Rules for the IAW

To claim the IAW, the total cost of the asset must be under the relevant threshold. This includes the cost of having the asset installed and ready for use. 

Each asset must be under the threshold, but there’s no limit to the total amount your business can claim. 

If your business is registered for GST, the IAW threshold excludes GST. Otherwise, the threshold includes GST. 

From 12 March 2020, businesses with an aggregate turnover of up to $500 million are eligible for the IAW, up from $50 million previously. 

Eligible assets for the IAW

What you can purchase ranges from furniture through to computers and IT equipment, that may be required to enable staff to work remotely. 

Industry specific kit such as new tools for tradies, or POS devices and security systems for a retail store also meet the rules. 

Although the IAW is generous, assets such as horticultural plants and in house software are ineligible. 

Watch out for the traps

To claim the deduction, your new asset must be fully installed and ready for use before the end of the financial year in which you lodge your claim. 

If you are a sole trader, you also need to apportion any private use. For example, if you purchase a new car and use it for business purposes 70 per cent of the time, you can only claim 70 per cent of the cost. 

You are not permitted to reduce the asset’s price with a trade-in or personal use apportionment to get under the current $150,000 threshold. For example, if your new equipment costs $210,000 and business use is 70 per cent (leaving a claimable amount of $147,000), you can’t claim the IAW as the original cost is still over the threshold. 

If your business is structured as a partnership, it’s important to remember the partnership owns the asset – not the individual partners – so there’s no double-dipping. If a partner buys the asset in their own name and doesn’t qualify as a small business taxpayer personally, they can’t claim the write-off. 

Using simple depreciation

If your business buys an asset valued over the IAW threshold, you can’t claim the immediate deduction. You can, however, allocate it to your general small business pool and use the simplified depreciation rules

The general depreciation rules apply if you are ineligible or choose not to use the simplified rules, or if the ATO classes your business as medium-sized. 

Using a general small business pool allows you to combine the business portion of higher cost assets and claim a 15 per cent deduction in the financial year you start using them, then 30 per cent each year after that. 

Accelerated depreciation initiative

As part of the government’s coronavirus response, medium businesses with a turnover of less than $500 million can use accelerated depreciation rules to deduct 50 per cent of the cost of an eligible asset on installation. Normal depreciation rules apply to the balance of the asset’s cost. 

In these unprecedented times, we are here to assist you. Please don’t hesitate to give us a call on 03 5120 1400 if you have any questions about the instant asset write off or any aspect of the broader stimulus package.

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 or RGM Finance Brokers Pty Ltd ABN 81 330 778 236 (RGM) that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.

The Economic Stimulus Package

Maintaining confidence, supporting investment, keeping people employed

By now you’re probably aware that the Federal Government has “announced” a $17.6 billion stimulus package. One designed to “protect the economy by maintaining confidence, supporting investment and keeping people in jobs”.

If you’re wondering what that might mean for you, here’s a brief guide to the four major components of the package.i

Payments to lower-income households

Post-GFC, the Rudd Government sent $900 cheques to adult Australians earning less than $80,000.ii The Morrison Government is doing something similar by providing Newstart recipients, age pensioners and veterans a one-off payment of $750. These payments will start flowing into the bank accounts of 6.5 million (mainly) lower-income Australians from March 31. While most working Australians won’t receive this payment, this type of tightly targeted payment will provide maximum bang for buck in terms of stimulating the economy. 

Cashflow assistance to business

Business owners and their employees have also been well-catered for in the stimulus package. 

Small and medium-sized businesses that employ staff and have a turnover of less than $50 million will be eligible for tax-free payments of between $2000-$25,000. It’s estimated this “Boosting Cash Flow for Employers” measure will benefit 690,000 businesses that collectively employ 7.8 million people. Given there’s a $25,000 ceiling on the payment regardless of the size of a business’s workforce, it’s a measure that will benefit smaller businesses much more than medium-sized ones.iii

Business owners who employ apprentices and trainees are also eligible to apply to have the Government pay half their wage for the first nine months of 2020. It’s estimated this measure will assist 70,000 business and 117,000 apprentices and trainees. 

While it’s a separate initiative, the Government’s provision of modest financial support for casual workers who contract Coronavirus will directly benefit those casual workers and indirectly benefit their employers. Without this payment to casuals, employers might have, for instance, had to worry about infected staff turning up to work out of financial desperation.iv

Support for business investment

The government is loosening the criteria around the instant asset write-off. Pre-Coronavirus, businesses with a turnover of up to $50 million could instantly write-off the purchase of assets costing up to $30,000. Post-Coronavirus, businesses with a turnover of up to $500 million can write off asset purchases of up to $150,000. 

On top of this, the Government has also accelerated depreciation deductions for the next 15 months. Up until June 30, 2021, businesses turning over less than $500 million will be able to deduct 50 per cent of the cost of any eligible asset the moment it’s installed. It’s predicted these two tweaks to the investment rules could benefit up to 3.5 million businesses that collectively employ almost 10 million Australians. 

Assistance for regional Australians

Regional Australia, already laid low by drought and bushfires, will be disproportionately impacted by Coronavirus. Many regional economies are dependent on the industries – tourism, education and agriculture – most affected by the pandemic. It’s yet to provide much detail, but the Government has promised to spend $1 billion propping up the nation’s regional economies. 

The end of the beginning

There’s broad agreement the Government’s stimulus package has been well-designed and will reduce the chance of Australia slipping into its first recession in three decades. But with share markets across the globe increasingly volatile and countries closing their borders, Australia is in unchartered territory and there may well be further changes to Australia’s economic policy settings in months to come. 

If you have any queries in relation to how the above measures may apply to your circumstances, please do not hesitate to contact our office. 

i Unless otherwise end noted, all the facts, figures and claims in this article come from the CommSec Economic Stimulus Package document 

ii https://finance.nine.com.au/personal-finance/900-cash-bonus-who-gets-it/facdc354-9a48-4e9e-850c-2bb8705dbe29 

iii https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Assistance_for_businesses.pdf 

iv https://www.smh.com.au/politics/federal/casual-workers-face-wait-up-to-13-weeks-for-coronavirus-payment-20200312-p549cj.html

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 or RGM Finance Brokers Pty Ltd ABN 81 330 778 236 (RGM) that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.