Another COVID-19 measure is an accelerated rate of depreciation for businesses with an aggregated turnover less than $500m. To be eligible for the accelerated depreciation, the depreciating asset must:
- be new and not previously held by another entity (other than as trading stock);
- be first held on or after 12 March 2020; and
- be first used or first installed ready for use for a taxable purpose on or after 12 March 2020 and before 1 July 2021 (yes – 2021 – it is not a typo!).
A depreciating asset will not qualify for the accelerated depreciation if:
- depreciation deductions have already been applied to the asset or the asset is written off immediately under the instant asset write-off rules;
- it will not be used principally in a business in Australia or located in Australia;
- it is used in a primary production business (e.g. fencing, fodder storage assets or horticultural plants); or
- you were committed before 12 March to acquiring or constructing the asset – you cannot restructure existing contracts to try to get around this rule.
You cannot split an asset or merge assets to try to qualify for the accelerated depreciation.
The rules for working out the accelerated depreciation vary depending on whether or not you use the simplified depreciation rules.
In all cases, you cannot deduct more than what you pay for the asset.
Small business using simplified rules
If you are a small business and you use 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 as part of the general small business pool rules.
Other businesses with an aggregated turnover less than $500m – including small businesses that do not use the simplified depreciation rules – will be able to deduct in the income year the asset is first used or installed ready for use:
- 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 after first offsetting a decline in value of 50%.
Tip! The rules for working out the accelerated depreciation are fairly complicated so speak to your tax agent before investing in new depreciating assets.
Ref: TaxWise Business April 2020