Depreciation has always been a little confusing for business owners.
The amount to depreciate and life of the Asset varies depending on the item, the different methods of depreciation and complex formulas add to the complexity of depreciation and the varying thresholds make it a nightmare.
Lucky for us in the lucky country, the ATO has attempted to simplify depreciation in the form of Tax Depreciation Incentives, although, the success of simplification is up to the reader to consider.
Taking advantage of these tax incentives means you could lower your taxable income, thus lowering your tax bill.
Depreciation Incentives include Temporary Full Expensing, two versions of Instant Asset Write-off and the Backing Business Investment scheme.
Temporary Full Expensing and Instant Asset Write off both allow for full write-off of eligible assets. However, that is the end of the similarity.
Temporary Full expensing is for assets first held and used for a taxable purpose at or after 7pm 6 October 2020. Temporary Full expensing has been extended until 30 June 2022. The business needs to have a turnover below 50 mil to use Instant Asset Write-off. A range of assets excluded from Instant asset write off are those already in a low value pool, some Primary Production Assets and certain capital works.
Instant Asset Write-off can be used for assets under 30K if the asset was owned at or after 2 April 2019, or 150K if the asset was first owned between 2 April 2019 and 31st December 2020. The Items must have been ready for use or installed 2 April 2019-11 March 2020 or 12 march 2020 and June 2021. Instant Asset Write-off can not be used for Assets that are excluded from simplified depreciation rules, which includes assets that are to be rented out, low value pool assets, already allocated, horticultural plants, Software allocated to a pool R&D and Capital works. If you are a small business not using simplified depreciation, you are unable to use Instant Asset Write off.
Backing Business Investment Allows for an accelerated depreciation of eligible assets that were first held and in use between 12 march 2020 and 30 June 2021. The Assets must be new, not second hand. Some primary production assets are not eligible and assets that will never be held in Australia are not eligible.
You can opt out of Temporary Full expensing and the backing business investment scheme on an asset-by-asset basis, but once an asset is in, you can not revoke your choice.
I hope the ATO has helped you understand depreciation a little more with these tax depreciation incentives. If you are still as confused as the mad hatter was at his own tea party, Sharbara Accounting Services can help.
