On 13 March 2018, the Opposition Leader: Bill Shorten announced that, if elected, his Government would introduce legislation to permit an immediate 20% tax deduction, for any new eligible asset worth more than $20,000. This would be available to all businesses (and they call it the ‘Australian Investment Guarantee’).
The scope and key design features of this ‘Guarantee’ are as follows:
- Eligible assets will include tangible machinery, plant and equipment for both upgrades and new purchases (for example, farm tractors and food processing machinery).
- Depreciable intangible assets (often referred to as “knowledge assets”) which make up an increasingly larger component of non-mining investment will also be eligible (for example, patents and copyrights).
- Investments in structures and buildings (covered by Div 43 of the ITAA97) are excluded, consistent with previous accelerated depreciation policies used in Australia.
- It would not apply to otherwise eligible expenditure currently claimed under the existing research and development tax concession.
- It would not apply to passenger motor vehicles, but it would apply to non-passenger motor vehicles such as lorries, vans, utes and trucks that are used to support trade businesses.
- It would only apply to eligible investments valued at over $20,000 (with no pooling of assets allowed) to ensure it is well-targeted at productivity-enhancing investments.
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Because the Australian Investment Guarantee applies to depreciable intangible assets, it will include new investments in computerised technology (such as new software) and intellectual property such as patents and copyrights.
An attractive feature of this measure is that, the 20% deduction is not the only deduction, available in the first year. The normal first year amount can also be claimed too, albeit calculated only on the undeducted/remaining amount of the cost. The 20% is not a bonus deduction, but merely an acceleration of the rate at which the cost can be amortised.
This measure would take effect from 1 July 2020.
Why only on items costing more than $20,000
It is not clear from the ALP Fact Sheet, announcing the measure, why this is only available for assets with a cost over $20,000.
- The amount happens to coincide with the $20,000 threshold for immediate asset write-off for small business, which is available up to 30 June 2018 (see s328-180(4) of the Transitional Provisions Act, increasing the $1,000 cost threshold, in s328-180(1) of the ITAA97, to $20,000 from 12.5.15 to 30.6.18). It is tempting to say this is the reason (that this amount will already be written off) and this is a signal that Labor intends to make that permanent. That would be a ‘big deal’ though and worthy of its own announcement. Also, this write-off is only available to ‘small business’ and the announced accelerated depreciation is for all taxpayers.
- Probably it is to target the incentive to large items that could be expected to make a difference at the level that reducing company tax rates, might otherwise have done.
This is an alternative to reducing the company tax rate
This form of ‘accelerated depreciation’ is aimed at providing a boost in investment, which they hope will be more direct and effective than a reduction in the company tax rates (which they’re still opposing).
The balance of the asset would be depreciated in line with normal depreciation schedules from the first year. Labor said that this accelerated depreciation measure would be permanent (or ‘indefinite’ in any event).
For further details and the rationale for this measure (as an alternative to company tax rate cuts, to stimulate the economy) see further the ALP fact sheet, Australian Investment Guarantee. It says:
Labor understands the importance of boosting investment, to support growth and jobs now and into the future. Labor’s position on the Government’s company tax cut for big businesses and multinationals is not an opposition to boosting investment. But we do believe the Government’s plan is unaffordable, and there is a need for a more targeted and cost-effective approach over the short to medium term.
Amongst other objections to a company tax rate cut, Labor complains that:
- “Up to 60 per cent of the Government’s company tax handout goes directly to foreign shareholders” and that:
- “25 per cent, a huge amount of revenue is lost over the short to medium term because it results in windfall gains for “back book” (that is, previously made) investments”; and
- cutting corporate tax rates “hurt Australian living standards”, citing modelling done by Dr Janine Dixon showing, on her set of assumptions, that whilst GDP might increase, national income won’t.
Labor’s materials (and policy) do not seem to take into account the long term damage that Australia’s economy will suffer by having a plainly uncompetitive corporate tax rate.
18.3.2018
[FJM; LTN 49, 13/3/18; Tax Month March 2018]
Study questions (answers available)
- Is Labor’s proposed measure, to allow 20% accelerated depreciation, on most currently depreciable items, with a cost over $20,000?
- Is it the remaining 80% that is then depreciated?
- Is the 20% all that could be deducted in the first year?
- Would this incentive be for a limited time, like the $20,000 small business write-off is?
- Will it be available on capital works that can be written off under Div 43 of the ITAA97?
- Will it apply to R&D items?
- Will it be available on passenger motor vehicles?
- Does the ALP see this as a better targeted and more affordable alternative to reducing company tax rates?
[answers:1.yes;2.yes;3.no(alsoNormal1stYearDept’nOnWDV);4.no(permanent/indefinite);5.no; 6.no;7.no;8.yes]