Instant asset write-off extended to more taxpayers; threshold increased
The Budget contains important changes to the instant asset write-off rules. These changes are in addition to the measures contained in a Bill currently before Parliament.
There are two key changes.
- First, the write-off has been extended to medium sized businesses, where it previously only applied to small business entities.
- The second important change is that the instant asset write-off threshold is to increase from $25,000 to $30,000. The threshold applies on a per-asset basis, so eligible businesses can instantly write off multiple assets.
The threshold increase will apply from 2 April 2019 to 30 June 2020.
Small business entities (i.e. those with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.
Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool and depreciate those assets at 15% in the first income year and 30% each income year thereafter. The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current “lock out” laws for the simplified depreciation rules (which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.
Medium sized businesses
Medium sized businesses (i.e. those with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.
The asset purchase date is critical. The concession will only apply to assets acquired after 2 April 2019 by medium sized businesses (as they have previously not had access to the instant asset write-off) up to 30 June 2020.
Arrangements before 2 April 2019
The Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 was introduced in Parliament on 13 February 2019. It proposes to amend the tax law to increase the threshold below which amounts can be immediately deducted under these rules from $20,000 to $25,000 from 29 January 2019 until 30 June 2020, and extend by 12 months to 30 June 2020 the period during which small business entities can access expanded accelerated depreciation rules (instant asset write-off). The Bill is still before the House of Representatives.
The changes in the Bill interact with the Budget changes. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 and first used or installed ready for use over the period from 29 January 2019 until 2 April 2019. The changes outlined above will take affect from then (with access extended to medium sized businesses).
Date of effect
The changes announced in the Budget will apply from 2 April 2019 to 30 June 2020.
Accordingly, the threshold is due to revert to $1,000 on 1 July 2020. We understand that from that time, the concession will only be available to small business entities (i.e. the instant asset write-off will not be available to medium sized businesses).
Proposed Division 7A amendments – start date deferred for 12 months
The Government will delay the start date of the amendments to Division 7A from 1 July 2019 to 1 July 2020.
As previously reported, these amendments include:
- simplified Division 7A loan rules to make it easier for taxpayers to comply;
- a self-correction mechanism to assist taxpayers to promptly rectify breaches of Division 7A by giving them the opportunity to voluntarily correct their arrangements without penalty;
- safe harbour rules for the use of assets to provide certainty and simplify compliance for taxpayers;
- technical amendments to improve the integrity and operation of Division 7A while providing increased certainty for taxpayers;
- clarification that unpaid present entitlements (UPEs) come within the scope of Division 7A;
- amended rules, with appropriate transitional arrangements, regarding complying Div 7A loans, including having a single compliant loan duration of 10 years and better aligning calculation of the minimum interest rate with commercial transactions.
Increased luxury car tax refunds for farmers and tourism operators
Relief to farmers and tourism operators will be provided via amendments to the luxury car tax (LCT) refund arrangements.
For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators can apply for a refund of any LCT paid up to a maximum of $10,000.
This contrasts with the current position where only a partial refund of up to $3,000 may be available on eligible vehicles.
There are no changes to eligibility criteria and eligible vehicles under the new refund arrangements.
Disclaimer: This article is not advice and readers should not act solely on the basis of the material contained in this article. The Budget measures are only statements of proposed changes, and are not yet law. With an election expected to occur in May 2019, it is still uncertain whether these proposals will become law. Changes in legislation may occur quickly. We therefore recommend that formal advice be sought before acting in any of the areas identified in this article.