One of the key Federal Budget changes passed last week by the Parliament is an amendment to the instant asset write-off rules. The Government has granted a temporary tax incentive to support new investment and deliver significant cash flow benefits to around 3.5 million (99%) businesses in Australia.

The new measures allow businesses with an aggregated turnover of less than $5 billion (yes, BILLION!) to deduct the full cost of eligible depreciating assets. Businesses can also deduct the full cost of improvements to these assets and to existing eligible depreciating assets made during this period.

To be eligible for the instant asset write-off rules, the new asset must be:

  • located in Australia and principally used in Australia for the purpose of carrying of a business; and
  • first held, used or installed ready for use for a taxable purpose between 6 October 2020 and 30 June 2022.

In addition, the depreciating asset cannot be:

  • excluded from the uniform allowance (depreciation) rules (for example building or other capital works); and
  • subject to:
    • low value pool rules (assets costing less than $1,000);
    • software development pools;
    • certain primary production depreciating assets (such as water facilities, horticultural plants, fodder storage assets or fencing assets).

The above rules apply to the acquisition of new eligible assets. The following separate rules apply to second-hand eligible assets:

  • Businesses with an aggregated annual turnover of less than $50 million, full tax deductibility will be allowed for eligible second-hand assets.
  • Businesses with an aggregated annual turnover between $50 million and $500 million, full tax deductibility will be available for eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 and first used or installed ready for use by 30 June 2021.

Because the new instant asset write-off rules cease to apply on 30 June 2022, tax deductions for the decline in value of depreciating assets after 30 June 2022 will be calculated under the usual uniform capital allowance (depreciation) rules.