COVID-19 Instant Asset Write Off And Accelerated Depreciation

Instant asset write off provisions

While many of the COVID-19 stimulus changes such as the JobKeeper payment  are grabbing headlines, it is easy to overlook the significance of the $150,000 instant asset write off provisions.

The key changes for the instant asset write off include the following:

  • Certain business entities can access an immediate deduction for the full cost of depreciating assets costing up to $150,000 (GST exclusive).
  • The asset must be first used,
or installed ready for use, for a “taxable purpose” during the period 12 March 2020 to 30 June 2020.
  • The write-off will be available to businesses with an “aggregated turnover” of less than $500 million.

Note that for a car that costs above the luxury car cost limit, only the cost limit of the car can be claimed as an immediate tax deduction in the period to 30 June 2020.

This is because the relevant provisions refer to the “adjustable value” of the asset and the first element of the cost of a car is reduced to the car limit if the cost exceeds that limit.

Instant asset write off threshold

The instant asset write-off threshold will also be increased to $150,000 for amounts included in the second element of an asset’s cost (typically, subsequent capital expenditure) provided:

  • the cost of the related asset was subject to the instant asset write-off in an earlier year; and
  • the amount is included in the second element of the asset’s cost during the period from 12 March 2020 to 30 June 2020.

The threshold will also be increased to $150,000 for the balance of an entity’s general small business pool that can be claimed as a deduction at the end of an income year for income years that end on or after 12 March 2020, but before 1 July 2020.

Note: From 1 July 2020, the instant asset write-off threshold will revert to its original level of $1,000 (unless legislative changes are made in the meantime) and will only be applicable for businesses with an aggregated turnover of less than $10 million.

Accelerated depreciation

Businesses with an aggregated turnover of less than $500 millionin an income year can deduct capital allowances for a qualifying depreciating asset at a rate of 50% of its cost. This is in addition to the normal depreciation that is claimed on the cost of the asset after deducting the 50% amount.

A qualifying depreciating asset must satisfy several conditions, including:

  • it must be new and not have been previously held by another entity (other than as trading stock or for testing purposes),
  • it is an asset for which an entity has not claimed depreciation deductions, including under the instant asset write-off rules, and
  • it is first held, and first used or installed ready for use, for a taxable purpose between 12 March 2020 and 30 June 2021.

It should also be noted that a small business entity (that is, an entity with turnover below $10 million using the simplified depreciation rules) can deduct depreciation at the rate of 57.5% for the “taxable purpose” proportion of the cost (or the adjustable value) of a “qualifying depreciating asset” where it is added to the general small business pool and it is held and used, or installed ready for use, between 12 March 2020 and 30 June 2021 (inclusive).

Early release from super a relief, but comes with risks

The government is allowing the early release of superannuation and a temporary reduction in minimum pension drawdown rates to help individuals deal with the adverse economic effects of COVID-19.

Retirees watching their savingsgo down amid volatile markets will no doubt welcome the temporary reduction in minimum pension drawdown rates to help them better manage the financial outcomes of COVID-19.

However, perhaps some caution should be exercised for those considering accessing their super early. By early April 2020, more than 600,000 Australians had applied through their myGov account to get an early release of their superannuation. The government is anticipating up to 1.6 million requests will be made and estimates a total of about $27 billion tax-free will be drawn down under this scheme.

While withdrawing super early will bring a relief and be the right option for some, there are risks. Individuals who fully withdraw their super or have their balances drop below $6,000, could lose income protection and life and total permanent disability insurance cover.

Many economic commentators say taking money out before retirement should be done only as a last resort. As a result, individuals should weigh up the pros and cons and seek independent advice.

Fund members should also watch out for scammers offering to “help” them withdraw their superannuation.

The Australian Competition and Consumer Commission confirmed that scammers are cold-calling people and attempting to charge a fee to facilitate early access, while also obtaining personal information that will help them fraudulently access the victim’s superannuation funds. Remember, only the ATO is coordinating the early release of super through myGov.

Temporary early release of superannuation

Eligible individuals affectedby the coronavirus can accessup to $10,000 of their super in 2019-20 and a further $10,000 in 2020-21. Individuals will not need to pay tax on amounts released and withdrawals will not affect Centrelink or Veterans’ Affairs payments.

From mid-April 2020, eligible individuals can apply online through myGov to access up to $10,000 of their superannuation before 1 July 2020. They can also access up to a further $10,000 from 1 July 2020 for approximately three months.

To be eligible, you must satisfy any one or more of the following:

  • You are unemployed.
  • You are eligible to receive a JobSeeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance.
  • On or after 1 January 2020, either
    • you were made redundant
    • your working hours were reduced by 20% or more
    • if you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.

Temporarily reducing minimum drawdown rates

It should be also noted that the government is temporarily reducing superannuation minimum drawdown requirements for account-based pensions and similar products by 50% for 2019-20 and 2020-21.

The government is also reducing both the upper and lower social security deeming rates by a further 0.25 percentage points in addition to the 0.5 percentage point reduction to both rates announced on 12 March 2020.

If you have any queries about instant asset write off and accelerated depreciation, please contact our tax consultants at W Wen & Co on (02) 9871 3429 or (02) 8090 2449

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