Asset write-off explained: How your business can take advantage of the 12-month extension

It was one of the big ticket items for businesses in last year’s federal budget and SMEs will now have another 12 months to take advantage of the massive asset write-off scheme.

The temporary full-expensing measure allows almost all Australian to immediately write-off the full value of all new assets, without limits on the value of individual purchases.

The scheme was due to expire on June 30, 2022, but Treasurer Josh Frydenberg announced on Tuesday it will now continue until June 30, 2023.

So how does the new “immediate expensing” scheme work, and which businesses are eligible?

Here’s what you need to know.

Who can access the new scheme?

The new asset write-off measure is available to all Australian businesses with up to $5 billion in annual turnover.

What does it allow my business to do?

Under this scheme, businesses will be able to claim the full value of all new eligible depreciable assets of any value that are first used or installed before June 30, 2023.

Businesses will also be able to claim full deductions for the cost of improvements made to existing depreciable assets.

The scheme is essentially a vastly expanded accelerated depreciation program that allows businesses to claim a tax deduction for the full value of a purchase after its use, rather than claim depreciation amounts over several years.

The aim is to get businesses to bring forward spending on new assets by allowing them to claim the full tax deduction upfront, and thereby reducing the amount of tax they pay.

When did the asset write-off scheme start?

Treasurer Josh Frydenberg said the initial scheme started from 7.30pm, October 6, 2020 — or the very moment he began delivering his 2020 budget speech.

Of course, as is the case with most budget measures, legislation was needed in order for the tax incentive to officially come into effect.

How long will it last?

This new scheme is a temporary measure and will be in effect until June 30, 2023, following the 12-month extension announced in the 2021 federal budget.

This means if businesses want to make a claim under the scheme, the assets purchased must be installed and ready to use by June 30, 2023.

The initial two-year timeframe for the measure was welcomed by accounting software provider MYOB last October, with chief executive Greg Ellis telling SmartCompany this is “excellent news for a third of Australia’s SMEs, who our data shows anticipate recovery to extend beyond 12 months”.

What can I claim under the asset-write off scheme?

All new assets are eligible under the scheme, provided they meet existing criteria for depreciable assets.

Examples put forward by the government include coffee machines, forklifts, tractors, freezers and labellers.

The government has also confirmed to SmartCompany there is also no cap on the value of the new assets that can be claimed.

This differs from the existing instant asset write-off scheme, which has a cap of $150,000 for purchases.

What about secondhand assets?

In the 2020 budget papers, the government said SMEs with up to $50 million in annual revenue will also be able to immediately claim a full deduction on all secondhand purchases.

Businesses with between $50 million and $500 million in annual revenue were able to claim a full deduction for secondhand assets worth up to $150,000 in value under the existing instant asset write-off provision, if the assets were purchased by December 31, 2020.

The two schemes essentially operated side-by-side for the following few months.

While this potentially confusing for business operators, Mark Chapman, tax communications director at H&R Block, said it meant businesses with up to $500 million in annual turnover would be able to claim the full value of secondhand purchases, “one way or another”.

Will there be any exclusions?

There are only a few types of assets that will be excluded from the program, according to additional information provided to SmartCompany by Treasury.

These include capital works, horticultural plants, and assets allocated to a software development pool, which are subject to separate tax treatments.

Buildings are also excluded, as are intangible assets, such as customer lists and goodwill.

Chapman told SmartCompany it is likely that very expensive cars will be excluded from the scheme, as there are already provisions in place to exclude such purchases from existing depreciation arrangements.

Is there anything I need to be wary of?

Chapman says, as is the case with any tax claim, it’s important for businesses to make sure they keep a record of all their purchases claimed under the scheme, included when they made the purchase and the value.

If you acquire an asset that you will also be used personally, you will only be able to claim a portion of the value under this tax measure, says Chapman.

“You can’t automatically claim the full cost,” he says.

It’s also important to remember that accelerated depreciation schemes are just that — a way to accelerate the depreciation you would ordinarily claim over a longer period of time. They do not offer a “rebate” on the purchase, says Chapman.

“What you get is a tax deduction,” he says, “not a dollar-for-dollar rebate”.

“I think there’s still a fair bit of misunderstanding.”

In fact, Chapman believes the government’s new loss carry-back scheme, which has also now been extended for another 12 months, may potentially be more useful for companies, as it will provide refunds on taxes paid on previous profits.

“We’ve long needed that measure and it is very good that they have introduced it,” he says.

“Hopefully they will make it permanent.”

More information about the asset write-off measure is available in this fact sheet from the government.

A version of this article was first published on October 7, 2020.