20 Mar Government announces enhanced tax concessions to support business capital investment
The coronavirus is first and foremost a public health issue, but it is also having a major impact on the economy. The government has announced a comprehensive stimulus package – the first totaling $17.6 billion – to confront these challenges. In particular, the government and Reserve Bank have set out to cushion the blow for Australian businesses with a number of initiatives to support business capital investment through enhanced tax concessions.
The first of these measures is an increase in the instant asset write-off (IAWO) threshold from $30,000 to $150,000. It has also been expanded to include all businesses with aggregated annual turnover of less than $500 million – that’s about 99 per cent of all Australian businesses.
This is only a temporary measure and businesses will need to act quickly to take advantage of this offer – it will only apply to eligible depreciating assets that are first used or installed ready for use between 12 March 2020 and 30 June 2020.
After this time, the asset threshold will revert to $1,000 and the instant write-off will only apply to small businesses with aggregated turnover of less than $10 million.
The second of these measures – Backing Business Investment – is an accelerated depreciation deduction for all newly acquired depreciating assets (it will not apply to second-hand assets).
Under this initiative, businesses will receive a tax deduction of 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost. This measure will apply for approximately 15 months to eligible new depreciating assets acquired from 12 March 2020 and first used or installed by 30 June 2021.
Significantly, there is no limit to the cost of a depreciating asset that can qualify for this concession.
It’s vital that businesses thinking about taking up this offer seek professional advice from their accountant.
Each business is different; however, there are potentially some significant benefits for businesses that act now and take advantage of these measures:
- Businesses that take advantage of these enhanced tax concessions will experience the benefits almost immediately in the form of reduced taxable income and tax payable.
- There is quantifiable evidence that demonstrates the benefits of instant asset write offs to business. In 2017-18, over 360,000 businesses benefited from the scheme then in place, claiming deductions over $4billion. The current package has been greatly expanded. Previously, the scheme was only available to businesses with an aggregated turnover up to $50,000 and with a threshold of $30,000.
- The package provides a strong incentive for businesses to buy, rather than hire, new assets – the full cost of assets under $150,000 can be written off if the asset is acquired and in use by June 30, 2020.
- The benefits will be realised through the current tax system, so there will be minimal red tape and additional administrative work required to access the scheme.
- The Reserve Bank has announced record low interest rates with a cash rate of 0.25 percent expected to be in place for at lease three years. The RBA has also extended a term funding facility for the banking system, with particular support for credit to small and medium-sized businesses.
Vermeer is well resourced to meet customer demand and, at this point in time, does not expect any supply chain issues.
For more information, click here to contact your local Vermeer branch.