The Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018 having been introduced on 24 May 2018; referred to the Senate Economics Legislation Committee on the same date, which reported on 30 May 2018 (unanimously supporting passage); was introduced into the Senate on 25 June 2018; sat in abeyance over 1 July 2018 (despite that being the start date of the measure); passed the Senate on 12 September 2018 and received Royal Assent on 21 September 2018, becoming Act No. 109 of 2018.
The Act amends the ITAA97 and Income Tax (Transitional Provisions) Act 1997 (Transition Act) to extend by 12 months to 30 June 2019 the period during which small business entities can access expanded accelerated depreciation for assets costing less than $20,000 (instead of reverting to $1,000 on 1 July 2018).
Broadly, this extended period applies to the following.
- The write-off of the cost of depreciating assets, where its original cost (1st element) is under $20,000.
- The write-off of sub-$20,000 improvements to depreciating assets (2nd element of depreciation ‘cost’).
- Putting all assets, with a cost over $20,000, into the Small Business depreciation pool.
- Writing off the closing balance in the depreciation pool, if that balance is under $20,000.
- Turning off the 5 year ‘lock out rule’, to allow all small business entities to opt back into the Small Business depreciation regime (under which this ‘instant asset write-off is provided).
More specifically this $20,000 write-off operates within the Small Business depreciation regime (in subdivision 328-D ITAA97). The write-off is available under s328-180 ITAA97 (as modified by s328-180 of the Transition Act). The following explains the detail.
- There is a 100% write-off, for depreciating assets with a ‘cost’ under $1,000 (s328-180 ITAA97) but this cost cap has been increased to $20,000 (via s328-180 Transition Act). This increased cap ran from budget time in 2015 and had been due to expire on 30 June 2017, but it was extended, to 30 June 2018, last year, and has been extended, again, to 30 June 2019, this year.
- This accelerated depreciation is for for small business entities (SBE), which are business entities with an annual turnover, that originally was $2 million, but was increased $10 million, from 1 July 2016 (s328-110 of the ITAA 1997).
- This accelerated depreciation is only for entities that have elected to use the ‘small business entity’ simplified (pool basis) regime for depreciation in Subdiv 328-D (s328-180(1)(ab) ITAA97). If an SBE had depreciated an asset under this simplified regime, and then elected out of the regime (back to Div 40), then there is a ‘lock-out’ rule in s328-175(10) ITAA97, which precludes the SBE opting back in to the Subdiv 328-D (pool) regime, for 5 years. This rule, too, has been relaxed, for the purpose of maximising the economic benefits of all SBE entities being able to increase their spending, because of this tax incentive. I expand on this, further, below.
- The extended 2019 period applies to the immediate write-off of the 1st element of cost of a depreciating asset, if that ‘cost’ is under $20,000 (s328-180(1)(b) ITAA97 & s328-180(4)(b) Transition Act). The 1st element of the cost is, in essence, the cost of its acquisition (s40-180(1)).
- The extended period also applies to an immediate write-off of the 2nd element of the cost of a depreciating asset, if the 2nd element of the cost is under $20,000 and the 1st element of the cost of the asset was 100% written off in an earlier year (s328-180(2) ITAA97 & s328-180(5) Transition Act). The 2nd element of depreciation ‘cost’ is the cost of improving or transporting the asset, after the first year (s40-190 ITAA97).
- There are matching provisions requiring the cost of depreciating assets be added to the ‘pool’, for amortised deductions, only if the 1st element of the cost, or the 2nd element of the cost, is over $20,000, in any one year (s328-180(3) ITAA97 & s328-180(5) Transition Act). The period for this higher threshold has been similarly extended to 30 June 2019.
- SBEs can (generally) write-off a closing balance, for the assets in their general small business depreciation pool, if that balance is under $1,000 (s328-210(1) ITAA97) but that value, too, has been increased to $20,000 (s328-180(6) Transition Act). The Transition Act has been amended, to extend the period of time, when this increased threshold applies, to 30 June 2019, also.
- There is (normally) a 5 year ‘lock out rule’ (s328-175(10) ITAA97). But this has been turned off under s328-180(2) Transitional Act. The period for which it has been turned off, has been extended to 30 June 2019, also.
CPD Questions (answers available)
- But for this Act, would the ‘small business’ instant asset write-off end on 30 June 2018?
- Does this extend, the $20k instant asset write-off, for another 2 years?
- Is the relevant small business turnover threshold, for the 2018-19 year, $50m?
- Was the previous cost threshold (for a 100% write-off) $1,000?
- Is the $20k cost threshold in the ITAA97?
- Can you write-off a sub-$20k improvement to a depreciating asset?