TABLE OF CONTENTS
Introduction
The government is introducing a time limited 15-month investment incentive to support business investment and economic growth over the short-term, by accelerating depreciation deductions.
A deduction of 50% of the cost of an eligible asset on installation will apply, with existing depreciation rules applying to the balance of the asset’s cost.
Eligible assets
| Eligible assets | Non-eligible assets |
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There is no limit on the cost of an eligible asset to which you can apply accelerated depreciation to, unless it is a passenger vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers.
If you purchase such a passenger vehicle costing more than the car limit at the time, you must reduce the cost of the car to the car limit before calculating your depreciation. You cannot claim the excess cost of the car above the car limit under any other depreciation rules.
If accelerated depreciation is to be applied to the purchase of an asset used for Research & Development (R&D) purposes, you can only claim the R&D tax offset for the proportion of the decline in value that is for R&D use. In working out the amount in relation to R&D use, you must subtract any non-R&D use (including the taxable purpose portion and private use portion).
Eligible business & rate
Small business
- a small business with an aggregated turnover of less than $10 million + uses the simplified depreciation rules, those assets over the instant asset threshold which are eligible for the accelerated depreciation are added to the general small business pool.
- You can deduct an amount equal to 57.5% (rather than 15%) of the business portion of a new depreciating asset in the year you add it to the pool.
- In later years the asset will be depreciated under the general small business pool rules.
Other business entities
- If you are an entity with an aggregated turnover less than $500 million in the income year and do not use the simplified depreciation rules, you may be eligible to deduct an amount if the asset is a qualifying asset.
The amount your entity can deduct in the income year the asset is first used or installed ready for use is:
50% of the cost (or adjustable value where applicable) of the depreciating asset
- plus the amount of the usual depreciation deduction that would otherwise apply but calculated as if the cost or adjustable value of the asset were reduced by 50%.
Examples
Small business benefits from accelerated depreciation
- NC Transport Solutions Pty Ltd has an aggregated annual turnover of $8 million for the 2019–20 income year.
- On 1 May 2020, Joan and Bruce purchase a new truck for $260,000, exclusive of GST, for use in their business.
- Under past tax arrangements, NC Transport Solutions Pty Ltd would depreciate the truck using their general small business pool. This means that NC Transport Solutions Pty Ltd would deduct 15% of the asset’s value when they added it to the pool, leading to a tax deduction of $39,000 for the 2019–20 income year (assuming there are no other assets in the pool).
- Under the new accelerated depreciation, NC Transport Solutions Pty Ltd will instead claim a deduction of 57.5% when they add it the pool, leading to a deduction of $149,500 for the 2019–20 income year.
- The following year, that same asset will claim only 15% depreciation thereafter. Last modified: 23 Jun 2020 QC 33726
Middle-sized business benefits from accelerated depreciation
- J Construction Solutions Pty Ltd has an aggregated annual turnover of $200 million for the 2020–21 income year. On 1 July 2020, J Construction Solutions Pty Ltd installs a $1 million truck mounted concrete pump for use in the business.
- Under past tax arrangements, in the first year J Construction Solutions Pty Ltd could claim 30% depreciation when using the diminishing value method (based on the asset’s effective life of six and two thirds years).
- Under the new accelerated depreciation, J Construction Solutions Pty Ltd can claim a depreciation deduction of $650,000 in the 2020–21 income year. This consists of:
- 50% of the concrete pump’s value under the new accelerated depreciation ($500,000)
- plus 30% of the remaining $500,000 under existing depreciation rules ($150,000).
Business purchases cars and utes in 2020–21 and claims accelerated depreciation
- J Construction Solutions Pty Ltd has an aggregated annual turnover of $200 million for the 2020–21 income year and is registered for GST purposes.
- On 1 September 2020, J Construction Solutions Pty Ltd purchases
- a fleet of five new cars (five seaters) costing $80,000 each
- and three new work utes with carrying capacity over one tonne costing $70,000 each, for use only in the business. The amounts shown here exclude GST.
- As the fleet cars are passenger vehicles subject to the car limit, before J Construction Solutions Pty Ltd can calculate its depreciation for 2020–21, they must first reduce the cost of each car to the 2020–21 car limit of $59,136.
- In the 2020–21 income year, for each car, J Construction Solutions Pty Ltd can claim a depreciation deduction of 50% of each car's cost up to the car limit. That is, $29,568 each – half of the car limit for the 2020-21 income year. They can also use the general depreciation rules for the $29,568 balance for each car applied over the life of the asset, excluding any GST. The company cannot claim the excess cost of each car above the car limit.
- However, the car limit does not apply to the work utes, as these vehicles have a load carrying capacity of over one tonne. So, 50% of the cost of each ute can be claimed immediately, and the balance of the cost can be deducted over the life of the asset under general depreciation rules.
- When reviewing its vehicle replacement program earlier in 2020–21, J Construction Solutions Pty Ltd also considered purchasing the following vehicles:
- a truck to transport building materials (not a passenger vehicle)
- a minivan (seating nine or more passengers) to move staff between its construction sites and
- a seven-seater station wagon for general purposes.
- Of the above listed vehicles, the car limit would only have applied to the purchase of the station wagon, as this is classed as a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers.
In summary
Effectively, together with the instant asset write-off rules, the accelerated depreciation deduction applies to assets with a cost (or adjustable value if applicable) of:
| 2019-20 | 2020-21 | |
| Car | ≤$57,581 | ≤$59,136 |
| Other assets | ≥$150,000 (ends 31 December 2020) | ≥$1,000 (as at 1 January 2021) |
If your asset exceeds the threshold (as per the table above), the amount above then you can claim an immediate:
