RH Commercial Insight

15 Commercial Insight May 2020 Economic Stimulus Packages Aids Assets Write O ff Wri tt en by Paul Mazole tt i of Napier & Blakeley Following on from the Federal Government’s announcement of a raft of stimulus initiatives, N&B Director for Property Depreciation and Insurance, John Mathew has compiled an excellent article showing how businesses will bene fi t from the immediate write o ff of their depreciating assets. As announced, the ruling is applicable for assets costing less than $150,000 or less for eligible business, these being a business with an aggregated turnover of less than $500 million e ff ective from 12 March 2020. The interesting part of all of this is that the date range for when assets are fi rst used or installed ready for use is 12 March till 30 June 2020. In John’s 23 years of experience calculating and preparing depreciation schedules, he commonly sees tax registers typically capitalizing on all the work carried out for the year, and then depreciation is calculated from the following year. The other extreme is that the monthly progress payments for multiple separate projects are capitalized and depreciated on a monthly basis although tax law requires a “project to be completed” (ready for use) before a depreciation charge can be taken. As the eligibility of the $150k claim is based on the fi rst use or ready for use date, it is going to be critical that every “capital project” to refurbish, alter and enhance is properly recorded to ensure documentation is available to substantiate claims. The Federal Government’s announcement provides an incentive to businesses for the 2019–20 and 2020–21 income years to deduct the cost of depreciating assets at an accelerated rate. For each new asset, the accelerated depreciation deduction applies in the income year that the asset is fi rst used or installed ready for use for a taxable purpose. To be eligible to apply the accelerated rate of deduction, the depreciating asset must:  be new and not “second hand”  be fi rst held on or after 12 March 2020  fi rst used or fi rst installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021 If you are a small business with an aggregated turnover of less than $10 million, and you use the simpli fi ed 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 it is added. In later years, the asset will be depreciated under the general small business pool rules. If you are an entity with aggregated turnover less than $500 million in the income year and do not use the simpli fi ed depreciation rules, you may be eligible to deduct an amount if the asset is a qualifying asset. The amount your entity can deduct in the income year the asset is fi rst used or installed ready for use is:  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 as if the cost or adjustable value of the asset were reduced by 50%. E ff ectively, together with the instant asset write-o ff rules, the accelerated depreciation deduction applies to assets with a cost (or adjustable value if applicable) of:  $150,000 or more in the 2019–20 income year  $1,000 or more in the 2020–21 income year. An example N&B Investments Pty Ltd had $1,000,000 work done to their assets and the work included the following 1. New chiller No 1. $250k spend, completed and operating 10th of March 2020. 2. New chiller No 2. $250k spend, completed and put in use 20 April 2020 3. New BMS system $140k spend, completed 1 April 2020 4. New lift $360K completed 1 April 2020 Assuming that each lot of work above were individual projects and not part of a larger contract / instruction we have calculated that the claims available for the fi rst part year ending 30 June would be as follows:- 1. Pre stimulus by non-eligible business $36,843 2. By eligible business tax payer post stimulus using simpli fi ed rules $528,250 3. By eligible business not using simpli fi ed rules $512,651 As the tax fl ow / cash fl ow bene fi t is signi fi cantly enhanced, it is going to be important for business owners to consider accelerating the capital renewal program. Now is the time, to review depreciating assets nearing the end of their e ff ective lives. In this environment of low interest rates there may be an opportunity to enhance your assets to meet challenges in the current market, bearing other factors in mind. Our N&B teams of Tax Surveyors, Quantity Surveyors, Building Surveyors, Engineers and Sustainability consultants can assist you with planning, forecasting and implementing a complete solution for your business. We’re here to ensure you gain the maximum bene fi ts eligible through the immediate depreciation ruling and ongoing capital allowances for your commercial assets. To learn more please contact our team on 07 3221 8255.