Many businesses are now reviewing their capital expenditure plans as a result of the recent Federal budget.
From 6 October 2020 until 30 June 2022, businesses with annual turnover of less than $5 billion, can deduct the full cost of eligible depreciable assets.
As part of this process there are some preliminary considerations we recommend before committing to large outlays.
1. Is there a business case for the planned capital expenditure?
It simply makes no sense to buy a tax deduction. Like any other investment, the planned capital expenditure needs to generate a return.
2. What is the current tax position of your business?
If the COVID pandemic has affected your business and resulted in tax losses for 2020, do you actually need a tax deduction in 2021?
If you bring forward all your tax deductions into 2021, how will this affect 2022 and beyond?
3. Make sure the asset you are considering is eligible
It's important to note that the immediate asset write off applies to "depreciating assets". Not every asset is a depreciating asset. There is often some confusion with "capital works" such as building or leasehold improvements. Capital works are not eligible for the immediate asset write off. If in doubt, please check with us.
4. Can any taxpayer claim the immediate asset write off?
The deduction is limited to taxpayers in business. This means passive activities like rental properties or share investments are not generally considered to be a business.
5. Does the asset need to be new?
a) For business with annual turnovers less than $50 million
The depreciating asset does not need to be new
b) For business entities with annual turnover exceeding $50 million
The depreciating assets must be new not second hand
Note the $150,000 threshold will still apply for assets acquired by 31 December 2020 and first used or installed by 30 June 2021 for these larger businesses for second hand assets.
6. When can the deduction be claimed?
You can only claim a deduction in the year that the asset is installed ready for use. It's not enough to have a purchase order / tax invoice, you need to have the asset installed ready for use.
7. Can I write off the full cost of a new Maserati?
The maximum deduction for cars is still subject to the luxury car limit of $59,136 (2020/21). (Please also refer to point 1 above!)
If you have any questions regarding your business and what all of this will mean for you, please contact us on (07) 3231 9100 and we will be happy to assist you further.