Thinking of investing in manufacturing equipment? Planning to upgrade your cartoning machines and leaflet feeding/inserting systems?
You could be eligible for tax concessions thanks to the Australian Government’s $17 billion economic stimulus package for coronavirus. According to the Australian Government, the package has been designed to ease the economic impact of the Coronavirus (COVID-19) which has been officially declared a global pandemic by the World Health Organisation.
Announced on Thursday March 12, the stimulus package includes tax breaks and subsidies for small businesses over the next four years. Three-quarters of the $17.6 billion package is directed to businesses, including a $6.7bn cashflow payment for employee wages, $4bn for new investment incentives, $1.2bn to support apprentices, and $1bn for the more hard-hit sectors, like tourism.
For manufacturers and food processors, as for any small-to-medium business owners, the big news is the huge expansion of the Instant Asset Tax Write-off scheme.
Let’s break it down
What’s the Instant Asset Tax Write-off?
Launched in the 2015 Federal Budget, the Instant Asset Tax Write-off scheme initially meant that any small business with turnover of less than $2 million could purchase assets up to the value of $20,000 and get an immediate tax deduction for the assets, rather than having to depreciate them over the following years.
The limit applies to each individual item, and business can use it multiple times for multiple assets.
Last year, the scheme was expanded to cover assets up to $30,000, with the revenue threshold for accessing the write-off raised from $10 million to $50 million.
Now, with the economic stimulus package, the Government has expanded it even further.
Introducing the new expanded scheme
Under the expanded scheme announced on March 12:
- The write-off has increased from $30,000 to $150,000.
- It is now available for businesses with an annual turnover of up to $500 million, instead of $50 million.
This means assets up to a value of $150,000 can be completely written-off for tax in the current year provided that the purchase is made on or before June 30, 2020.
The good news is that the measure is still available for the purchase of new or second-hand assets, so you can invest a wide range of business-related assets and obtain an immediate tax deduction.
For assets that do not qualify, there’s an additional incentive available in the following tax year, which allows businesses to claim up to 50% of the purchase price in FY21 as a tax write-off.
The remaining 50% must be written off in future tax years using normal depreciation rules.
Think of it as an accelerated depreciation deduction.
This is available provided that:
- The purchase is made before June 30, 2020
- The business making the purchase has an annual turnover less than $500 million
- The asset is “new”
What can you buy?
When we talk about assets, we mean an asset used in a business that has a limited effective life and is expected to decline in value over the period you use it. This could be vehicles, office equipment and furniture, through to manufacturing equipment. Land, computer software, and items of trading stock are not depreciating assets.
For manufacturers and food processors, this is a brilliant opportunity to upgrade inefficient and outdated equipment or invest in those automated solutions that you’ve been thinking about – machinery that will help you drive efficiencies, improve quality, save costs and ultimately boost your bottom line.
If you’re thinking about investing, start by doing some research into the right labelling, coding, marking and vision inspection equipment for your business.
This is not a grant or allowance – it’s a concession. Don’t rush out to buy assets (especially large investments) before checking the numbers and working out how the tax deduction will benefit you.
The instant asset write-off has been extended to more businesses, for more assets.
This is a huge win for Australian manufacturers and food processors. Now is the time to consider how you will use the scheme to invest in equipment that will help your business grow.