New $150K asset write off limit

Discussion in 'Accounting & Tax' started by [email protected], 12th Mar, 2020.

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  1. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The PM Scott Morrison today (12/3/2020) unveiled a intended increase in the asset write off thereshold from $30,000 to $150,000 effective until 30 June 2020.

    Sounds tempting. FAQ :

    1. Does it apply to property investors ? No. It only applies to small and some larger busiensses. A property investor is not generally a small business even if the property is owned by a company or trust. The test is the activity, not the structure.

    2. Does that mean if my company spends $150K I get $150K back. No definately NOT. It means if a eleigible busienss buys an individual asset that costs under $165,000 incl of GST and claims the GST that teh $150K of asset has the POTENTIAL to be immediately written off in the 2020 tax year. This BRINGS FORWARD depreciation. It adds a deduction of up to $150,000 per asset which reduces tacxable income. That may mean a profitable company may lower tax payable by up to 30% ie $150,000 x 30% = $45,000. It will not mean a refund is due unless tax instalments paid to date are excessive. It is nota tax credit, a rebate or a free ride. If abusienss is not likely to produce a tax profit this means the expense may just enhance a tax loss. It really just brings deductions for depreciation forward. It may also do more harm than good when lenders review financial reports.

    3. What are eligible assets ? The asset must be a depreciable item under Division 40. Buildings for example are not plant. Examples include trucks, machinery, plant and similiar systems.

    4. Yipee lets buy a Telsa. Sorry its NOT eligible. Cars are subject to a depreciation cost limit already. They are not eligible.

    5. Are all small busiensses included? Maybe not. Personal services businesses may need advice to determine if they operate a small business. Dont assume. This may curtail some deductions including eligible write off assets.

    I would recommend anyone thinking of this benefit seek personal tax advice before ordering any such asset. There may be very sound reasons to NOT claim the immediate write off.

    eg Fred owns a printing company. It has a expectancy of asmall profit but John is worried the virus may see orders fall and profit may become a loss. John is keen to reinvest in modern printing machinery anyway and thinks the $150K would even allow him a $300K write off for two new presses he needs. John seeks advice and knows that he may get no tax benefit in the 2020 year as a loss occurs but the loss will carry forward and he expect a larger profit in 2021. So he thinks the write off will help later. But then he is also thinking of selling the business and now learns that if the press is sold to Rupert Murdoch Ltd they will want to buy the press at full value and this will produce a fully assessable profit since its worth $0 on the books. So the really thinks there is no tangible benefit. John would rather use the small busienss CGT concessions than have profit on the presses later.

    Update. The depreciation provision also allow a 50% write off and then subsequent accelerated depreciation over 15 months.
     
    Last edited: 12th Mar, 2020
  2. Mike A

    Mike A Accountant

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    the big one is the Tax Free payments of between $2k to $25k paid to employers with less than $50m turnover based on 50% of the PAYG amount in the BAS/IAS from 1 January 2020 to 30 June 2020
     
  3. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Nice to see some details on this. I have mate who was affected by fires who fought them for three months while he let his property and farm go. He got nothing as he could not evidence not earning income..because he didn't earn income. He paid for meals travel and more and bought nda pump using his own money because they left his crew without a water pump when it failed but wouldn't pay for it. He got not 1 dollar. Yet they bragged about supporting the volunteers. He had to buy new uniforms on top. He gave them back and quit. Some policies are so tough in practice.
     
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  4. Archaon

    Archaon Well-Known Member

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    Would a van count as a work vehicle for this purpose or is it seen as a vehicle?
     
  5. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Depends. There is no test for a vehicle. There is a car to consider. And private use. And cost.
     
  6. Mike A

    Mike A Accountant

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    An individual or personal services entity (i.e. a company, trust or partnership) that derives PSI and which meets one of the four personal services business (PSB) tests or has a PSB determination in force is taken to be conducting a PSB, so they will be entitled to access the simplified depreciation provisions in Subdiv 328-D which includes the IAWO, provided they meet the SBE turnover conditions.
     
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  7. danielcannan

    danielcannan Well-Known Member

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    Hi Paul, my understanding with this is that cars would be eligible, up to the luxury car limits. Do you have any further information on this?
     
  8. danielcannan

    danielcannan Well-Known Member

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    Under the current instant asset write off rules, vehicles are eligible assets. There are even examples on the ATO website using cars as the purchased asset. The wrinkle with changing the dollar amount from $30k to $150k is that the new limit is higher than the luxury car tax limit.

    I haven't seen anything yet (mind you, details are scarce) that changes the definition of eligible or excluded assets.

    But I won't be rushing out to purchase a new car just yet.
     
  9. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Eligible assets are defined by Div 40 ITAA97 and this hasnt and wont be changed.

    Cars (incl SUV, 4WD and station wagons ) will be impacted by the car depreciation limit of $57,581 which is unchanged. A logbook also impacts the amount eligible. If the vehicle is a car and a logbook is not used then the statutory private use adjustement must also be considered.

    As far as cars are concerned this new rule may only benefit a busienss that buys a car that now costs more than $33K and less than approx $60K. It may be wise to seek tax advice prior to ordering the car as the apparent benefit may be less than expected. eg If the business has a tax loss there is no benefit as such. At the very best if a busienss has a profit and wanted to use the tax benefit for a $60K work vehicle the tax saving will BRING FWD a one off tax deduction of $54,500 with a tax saving of $15,000. So outlay $55K to save $15K
     
  10. Archaon

    Archaon Well-Known Member

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    So there would be no benefit of buying a vehicle as part of starting a business that isnt making profit as yet?
     
  11. Mike A

    Mike A Accountant

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    The car cost limit will limit the deduction to the 'cost' under subdivision 40-C
     
  12. Morgs

    Morgs Well-Known Member Business Member

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    What about a race caaaaa... ah ok I won't even ask :D
     
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  13. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I've got an office fit out happening in the next 6 months. Will likely cost about $40k. I suppose I'll be able to claim this?
     
  14. Mike A

    Mike A Accountant

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    Not unless it is installed and ready for use by 30 june 2020 so get cracking
     
  15. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Its not a car. (It cant convey passengers) and would only be eligible to the extent of producing assessable income. Race winnings may be assessable by a pro team but not by an enthusiast or hobbist who may have deductions limited to the income derived. Any loss would be subject to non commercial loss tests if it was a pro outfit.

    Instead of a race car buy a pizza oven. If you shovel cash into a pizza oven it will burn slower than a race car.
     
  16. Simon Hampel

    Simon Hampel Founder Staff Member

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    Funny because it's true.
     
  17. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Boats and planes too.

    The rule is the three f's. It it flies, floats or fxxks it will cost you loads of cash.
     
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  18. craigc

    craigc Well-Known Member

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    Purchases may also qualify for 50% accelerated depreciation write-off (no $150k asset value limit) if ready for use by 30 June 2021 if you are not ready by 30 June 2020. Although this is new assets only, The immediate write off may also apply to 2nd hand assets purchased.
    The Australian Government's Economic Response to Coronavirus

    legislation is not yet passed so details to be confirmed.
     
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  19. Propagate

    Propagate Well-Known Member

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    Are you able to explain how this one works for me? Not long after it was first announced, our accountant told us we'd likely be eligible for the full $25k.

    Looking at our books though, (we're a small business), we pay approx $6k per month PAYGW for the staff, so 6 months Jan to June = 36k in PAYGW, would that mean we'd be looking at a payment of 50% of that? ($18k)?

    Cheers.
     
  20. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Correct. You may consider the merits of upping your own salary (or prepaying July in June) and withholding an extra $7k of course. Eg Pay yourself a bonus of $7K with 100% of that withheld as tax. The tax impact personally also needs to be considered of course.

    TIP for all small businesses that receive stimulus $$$. Create a new Income account now in your software general ledger accounts called Coronavirus Stimulus - Tax Free and set a GST code that is 0% taxe . This will ensure no silly end of year issue includes the tax free amount in business income.
     
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