Extension of the instant asset write off period

Business with an aggregated turnover (which includes turnover of affiliates and entities connected with the taxpayer) for the income year of less than $500 million can immediately deduct the cost of a depreciating asset (the 'instant asset write-off'). The asset must cost less than a threshold of $150,000 and be first used or installed ready for use for a taxable purpose by 31 December 2020. In the absence of the amendments the $150,000 instant asset write-off would cease on 30 June 2020.

The changes also allow a larger business (with an aggregated turnover for the income year of $10 million or more and less than $500 million) that has adopted a substituted accounting period to access the $150,000 instant asset write-off for an asset first used or installed ready for use for a taxable purpose from 12 March 2020 until 31 December 2020.

Equivalent amendments are also made to allow an eligible business that has adopted a substituted accounting period to access the $30,000 instant asset write-off prior to 12 March 2020 regardless of when their income year ends.

The extension from the previous end date of 30 June 2020 to 31 December 2020 gives businesses additional time to access the $150,000 instant asset write-off for their investments.

Reduction in 2020-21 PAYG instalments

Prior to the Bill a GDP adjustment factor of 5% was applied under the Quarterly Instalment Amount method for estimating PAYG instalments. The GDP adjustment factor has been reduced to nil for the 2020-21 income year as it is not representative of profit growth in income years where the economic and business conditions change quickly, as has occurred with COVID-19. This should ensure that PAYG instalments calculated under this method are reduced.

Cash flow boost clarification

The Bill clarifies that an entity will be entitled to the first cash flow boost payment if the entity makes payments to the Commissioner under the alienated personal services income rules. The amendments have the effect of treating salary, wages, and alienated personal services income consistently for the purposes of qualifying for the first cash flow boost.

Observations

These measures provide some welcome cash flow relief for business experiencing the negative economic impacts of the COVID-19 crisis, and encourage businesses to look beyond the short term and consider their future investment in assets. Further legislative relief and economic stimulus measures would be welcome if required in the prevailing economic conditions.

Please contact a member of our Tax team if you would like to discuss the impact of the Bill on your business.