2021 Tax Tips – Understanding the tax treatment of assets

It can be very confusing when trying to understand the tax treatment of assets your business buys.

In addition to the long standing tax depreciation rules there are now 3 extra rules you need to consider for the 2020-2021 tax year. These are:

Temporary full expensing
Instant asset write off
Accelerated depreciation

See below for more information on the tax treatment of assets your business buys.

Temporary Full expensing

Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new depreciating capital assets.

Businesses with an aggregated turnover of less than $50 million, can immediately deduct the business portion of the cost of eligible second hand depreciating capital assets.

Applies to eligible assets being first held, and first used or installed ready for use for a taxable purpose, between 7.30pm AEDT on 6 October 2020 and 30 June 2022. (Note the 2021 budget has extend this till June 2023 but this is not yet law).

Instant asset write off

Businesses with an aggregated turnover of less than $500 million, can immediately deduct the business portion of the cost of eligible new and second hand depreciating capital assets costing $150,000 or less; as long as first used or installed ready for use between 12 March 2020 until 30 June 2021, and purchased by 31 December 2020.

Accelerated Depreciation

Businesses with an aggregated turnover of less than $500 million can claim accelerated (or higher / faster) depreciation rates on eligible new depreciating capital assets first used or first installed ready for use on or after 12 March 2020 until 30 June 2021.

Important notes

You need to check that the asset you want to claim is an eligible asset. Assets located overseas, buildings and some other assets are not eligible assets.
There may be a cap on the amount you can claim for a deduction for motor vehicles.
You can’t double dip and claim either a temporary full expensing or instant asset write off and a depreciation claim
If you only use a portion for business, you can only claim that portion as a deduction.
If you buy a work truck for $30,000 and claim a 100% tax deduction under temporary full expensing or instant asset write off rules; and you trade this in in say 4 years for a new vehicle and get a $10,000 trade-in. This $10,000 trade-in may be assessable income for you.

Make sure you talk to your tax professional to understand the best option for you re the tax treatment of assets your business buys.

Summary of the tax treatment of assets

	Temporary full expensing	Instant asset write off	Accelerated Depreciation
Period	First held, and first used or installed ready for use for a taxable purpose, between 6 October 2020 and 30 June 2022	First used or installed ready for use between 12 March 2020 until 30 June 2021, and purchased by 31 December 2020	First used or first installed ready for use on or after 12 March 2020 until 30 June 2021
New assets up to $30,000	Businesses with turnover less than $5 billion	Businesses with turnover less than $500 million	Businesses with turnover less than $500 million
2^nd Hand Asset up to $30,000	Businesses with turnover less than $50 million	Businesses with turnover less than $500 million	N/A
New assets $30,001 to $150,000	Businesses with turnover less than $5 billion	Businesses with turnover less than $500 million	Businesses with turnover less than $500 million
2^nd Hand Asset $30,001 to $150,000	Businesses with turnover less than $50 million	Businesses with turnover less than $500 million	N/A
New assets over to $150,000	Businesses with turnover less than $5 billion	N/A	Businesses with turnover less than $500 million
2^nd Hand Asset over $150,000	Businesses with turnover less than $50 million	N/A	N/A

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