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The instant asset write-off extension/
Australian Government Corona Virus ( COVID-19 ) Economic Stimulus Method 1 | The instant asset write-off extension
What is the Tax Benefit?
From 12 March 2020, the Federal Government will increase the instant asset write-off threshold for depreciating assets from $30,000 to $150,000. While the deduction was previously limited to small and medium-sized businesses (being those businesses with an aggregated annual turnover of less than $50 million), the revised limit will be extended to businesses with an aggregated turnover of less than $500 million. The increased asset and turnover thresholds will apply immediately until 30 June 2020. The announcement is currently silent on whether the measure applies to assets acquired from 12 March 2020, or assets installed ready for use from that day if acquired earlier.
How could this potentially impact cash flow?
Entities should consider whether they (or related entities within the group) have paid PAYG instalments during the 30 June 2020 income year and whether the new measure could assist in reducing the overall tax payable for the entity (or related entities within the group) for the current income year. In such a case, taxpayers could re-estimate their tax payable and seek to reduce their future PAYG instalments or (alternatively) lodge their 30 June 2020 tax returns shortly after year-end to receive a refund of overpaid instalments. Varying the PAYG instalment to zero may also give rise to a refund of instalments paid in previous quarters (i.e. in September and December of 2019). Further details on this have been provided by the ATO (see measure 5).
Taxpayers should also consider whether asset purchases should occur in a company (which could give rise to future unfranked dividends) as compared to a trust (which may result in tax preferred distributions). Where asset acquisitions occur in a trust, the funding of those acquisitions will need to be considered (e.g. Division 7A compliance versus external loan funding).
In addition, where tax is ordinarily payable by a base rate company (i.e. at the lower corporate tax rate), the new measures may have the effect of deferring taxable income to a later year, which may be subject to lower corporate tax rates (i.e. 26% for 30 June 2021).
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.
Contact your accountant to review your situation and determine what action is required.
Take a detailed read of the official government website which explains further details click here.
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