BACKING BUSINESS INVESTMENT: WHAT YOU NEED TO KNOW ABOUT ACCELERATED DEPRECIATION
The COVID-19 situation is still ongoing, and many of us have been impacted in one way or another. But help has been announced by the federal, state and territory governments in the form of economic stimulus packages.
The different packages include a variety of measures to tide both businesses and individuals over through this period, and to assist in the eventual economic recovery.
There are several measures aimed specifically at supporting businesses, including initiatives for boosting cash flow, supporting workers, increasing instant asset write-off threshold, and accelerated depreciation deductions.
The accelerated depreciation deduction initiative is housed under the Backing Business Investment (BBI) measure, which helps businesses acquire needed equipment such as trucks, but allowing for greater tax deductions and thus improving cash flow.
Let’s take a closer look at BBI and see what it might mean for your business in the current economic climate.
Backing Business Investment eligibility
The first question on most minds would be this: who can access this?
According to the government, Australian businesses with a turnover of less than $500 million will be eligible.
However, different criteria seem to apply to small businesses. For more information on eligibility for BBI, see here.
Do note that, according to business.gov.au, there’s no need for businesses to directly apply for the BBI.
When does the BBI come into effect?
The BBI is a time-limited 15-month investment incentive by the federal government, and is applicable to eligible assets used or installed between 12 March 2020 and 30 June 2021 (inclusive).
BBI: the nuts and bolts
Getting down to brass tacks… what exactly does the BBI do?
The BBI is an investment incentive to support business investment and economic growth over the short term, by accelerating depreciation deductions.
This means that, with the BBI, your business’s depreciating assets—such as a truck—undergo an accelerated rate of depreciation, resulting in greater tax deductions.
Depreciating assets refer to assets that can reasonably be expected to decline in value over the time they’re used. This includes items such as trucks and cars; for further information on eligible assets, see the ATO website.
How BBI works
It’s important to note that for the BBI to be applied to the depreciating asset, the following apply:
- The asset must be new and has never been previously held by another business entity (other than as a trading stock);
- The asset must not already have other depreciation deductions applied, including the Instant Asset Write-Off rules;
- The asset must be first held and first used (or installed and ready for use for a taxable purpose) between 12 March 2020 and 30 June 2021 (inclusive).
To see how a new truck purchase under the BBI scheme would work, see our handy information sheet here.
Generally speaking under the BBI, businesses with a turnover below $500 million can deduct 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance.
Do note that small businesses with an aggregated turnover below $10 million will follow different rules under the BBI, and are able to claim 57.5 per cent of the asset cost in tax deductions. For more detailed information on small businesses and BBI, see here.
It’s also worthwhile to note there appears to be no value threshold for the BBI, making it a useful support to invest in needed equipment during this 15-month time frame, and bolster your business for the eventual recovery.
How is the BBI important to my business?
The BBI is designed to support all types of businesses, whether they are small, medium or large. Assisting in short-term asset investment, the BBI aims to help businesses improve cash flow and pay lower taxes as we continue to be affected by COVID-19.
For a more detailed look at how the BBI might assist your business, we’ve taken an example from the ATO on BBI.
Source: Australian Taxation Office
ATO example: NC Transport Solutions
NC Transport Solutions is a small business and has a turnover of $8 million. On 1 May 2020, they purchase a new truck for $260,000 (excluding GST) and start using it that month. The Instant Asset Write-Off is not applicable here because the asset cost is more than $150,000.
Under the new BBI accelerated depreciation rules, small businesses can claim a deduction of 57.5 per cent. This equates to $149,500 claimable as a tax deduction for NC Transport Solutions in the 2019–20 income year.
Where can I find more information?
The BBI is only one of multiple new stimulus measures that could help support your business and your staff through this uncertain economic period.
For a real-world example of how the BBI could be applied to your business’s new truck purchases, see here.
And in addition to the federal government’s stimulus package, each state and territory government has rolled out separate supplementary initiatives. Have a look through the following links to see what additional support measures your state has in place:
- New South Wales
- South Australia
- Western Australia
- Northern Territory
- Australian Capital Territory
We know that trucking never stops, so check out our blog on safe work practices for truckies during COVID-19.