Australian Government Corona Virus ( COVID-19 ) Economic Stimulus Method 2 | The 50% investment incentive

What is the Tax Benefit?

The Federal Government announced that, from 12 March 2020, it would introduce an investment incentive, being effectively an accelerated depreciation allowance on eligible assets. The measure will allow businesses with turnover of less than $500 million to immediately deduct 50 per cent of the cost of an eligible asset. Existing depreciation rules would continue to apply to the balance of the asset's cost. The incentive will be available until 30 June 2021, to support business investment and economic growth through the short term. The announcement is silent on whether turnover would constitute aggregated turnover. Furthermore, the Prime Minister’s announcement and the Treasurer’s announcement differ on the start time – the former states the measure will apply to an asset based on “purchase” time, while the latter states it is based on “installation” time.

How could this potentially impact cash flow?

Similar to the instant asset write-off, the new measure could significantly impact the income tax payable of the group for the 30 June 2020 income year, which may provide opportunities to reduce PAYG instalments for the current income year and (or) seek refunds of income tax as soon as possible after year end. 

One of the main benefits of this measure is that there is no asset capping rule. Accordingly, it could be available, for example, to a listed company start-up with no turnover that acquires a $10 million asset.

What are the next steps?

The time period in which entities can access the stimulus package is limited and therefore action should be taken immediately. It is therefore critical to consider your position, whether you can qualify for the measures and the potential impact of the measures and how the rules apply. Many of these measures could assist clients in accessing much needed cash in the short term.