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Eligible businesses can deduct the cost of new depreciating assets

Eligible businesses, for the 2019–20 and 2020–21 income years, may be able to deduct the cost of new depreciating assets at an accelerated rate using the backing business investment – accelerated depreciation rules.

For each new asset, the backing business investment – accelerated depreciation deduction applies in the income year that the asset is first used or installed ready for use for a taxable purpose.

You claim the deduction when lodging your tax return for the income year. The usual depreciating asset arrangements apply in the subsequent income years that the asset is held.

If you are eligible for backing business investment – accelerated depreciation, you can choose to not apply these rules to an asset. The choice can be made on an asset-by-asset basis but cannot be changed once made. You make the choice in your tax return and you must notify us by the day you lodge your tax return for the income year in which the choice relates.

Eligible businesses

Businesses are eligible for the backing business investment – accelerated depreciation deduction if they have an aggregated turnover of less than $500 million in the year they are claiming the deduction. The deduction is available in the 2019–20 and 2020–21 income years.

Eligible assets

To be eligible to apply the accelerated rate of deduction under backing business investment, the depreciating asset must:

  • be new and not previously held by another entity (other than as trading stock)
  • be first held on or after 12 March 2020
  • first used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021
  • not be an asset to which an entity has applied either
    • temporary full expensing
    • the instant asset write-off rules.

There is no limit on the number of eligible assets that you can apply accelerated depreciation to in an income year under backing business investment.

Eligible assets do not include:

  • second-hand depreciating assets
  • some specific Division 40 assets subject to low value and software development pools
  • certain primary production assets (water facilities, fencing, horticultural plants or fodder storage assets), unless you are a small business entity that chooses to apply the simplified depreciation rules to these assets
  • buildings and other capital works for which you can deduct amounts under Division 43
  • assets that
    • will never be located in Australia, or
    • will not be used principally in Australia for the principal purpose of carrying on a business
  • other specific capital asset and expense deductions
  • assets you were committed to acquiring before 12 March 2020

There is no limit on the cost of an eligible asset, unless it is a passenger vehicle.

If you are eligible for backing business investment – accelerated depreciation, you can choose not to apply these rules to an asset. The choice can be made on an asset-by-asset basis. You cannot revoke your choice once it is made for an asset. You make the choice in your tax return and you must notify us by the day you lodge your tax return for the income year in which the choice relates.

If you choose not to apply backing business investment – accelerated depreciation to an asset, you apply the general depreciation rules to that asset.

You cannot claim a backing business investment – accelerated depreciation deduction if you use temporary full expensing or instant asset write-off for the same asset.

Working out your deduction

Different rules apply when working out your deduction, depending on whether you are using the simplified depreciation rules for small businesses.

Small business entity

If you are a small business with an aggregated turnover less than $10 million, and you use the simplified depreciation rules, you add to your general small business pool assets that:

  • cost $150,000 or more (instant asset write-off applies to assets costing less than this)
  • are eligible for backing business investment – accelerated depreciation
  • are not eligible for temporary full expensing.

You then deduct an amount equal to 57.5% (rather than 15%) of the business portion of a new depreciating asset in the year you add it to the pool. In later years the asset will be depreciated under the general small business pool rules.

Normal rules apply to assets allocated to the general small business pool that are not eligible for backing business investment – accelerated depreciation.

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