Budget 2020: Businesses to fully write-off all assets purchased and used before June 2022

Starting tonight, Australian businesses will be able to immediately write-off the full value of new assets under a measure unveiled in the federal budget.

There had been speculation for several weeks that the government would introduce an allowance for businesses to invest in plant and equipment, and tonight Treasurer Josh Frydenberg revealed the details of how the temporary allowance will work.

From 7.30pm this evening, October 6, a temporary tax incentive will be available to businesses with up to $5 billion in annual turnover.

It will allow them to claim an immediate deduction of the full value of all new, eligible, depreciable assets of any value that are first used or installed before June 30, 2022.

Businesses will also be able to claim full deductions for the cost of improvements made to existing depreciable assets.

At the same time, SMEs with up to $50 million in annual revenue will be able to apply “full expensing” to all secondhand assets.

Businesses with between $50 million and $500 million in annual revenue will be able to claim a full deduction for  secondhand assets of up to $150,000 in value under the existing instant asset write-off scheme if they are purchased by December 31, 2020.

The government has also added another six months to the instant asset write-off scheme to allow businesses that already hold eligible assets to first use or install those assets. The extension for these businesses will end on June 30, 2021.

Together the measures will cost the budget $26.7 billion.

In a statement accompanying the budget papers, Treasurer Josh Frydenberg said the new investment incentive will be available to 99%, or 3.5 million, Australian businesses.

“It will unlock investment, expand the productive capacity of the nation, and create tens of thousands of jobs,” said Frydenberg.

“Small businesses will buy, sell, deliver, install, and service these purchases.”

Australian businesses with up to $500 million in annual revenue can already claim accelerated depreciation on new assets to the value of $150,000 under the government’s instant asset write-off scheme, which has been expanded and extended this year in response to the COVID-19 pandemic.

However, the $150,000 instant asset write-off scheme is due to expire at the end of December for new purchases, and Frydenberg said the new measure builds on “the successful expansion of the instant asset write-off in our response to COVID-19”.

The new investment allowance is likely to receive the support of the Labor opposition, which took a policy of a 20% investment allowance on new assets over $20,000 to the last election.

A similar 20% investment allowance was proposed by the Business Council of Australia (BCA) in a pre-budget submission.

The BCA estimated such an allowance, if offered to all businesses, would create 500,000 new jobs and encourage $200 billion in investment over the next decade, at a cost of $10 billion to the budget bottom line.

The policy idea has also attracted support from other business groups, including the Council of Small Business Organisations Australia (COSBOA).

“A tax cut or an interest rate cut doesn’t provide any immediate impetus to go and do something straight away,” COSBOA deputy chair David Gandolfo told the Australian Financial Review last month.

“But we know, and you only need to look at last July when there was a rush on the purchase of new assets … that asset write-offs and tax incentives work — they actually do change behaviour.”

Previous governments have offered investment allowances to businesses, including during the global financial crisis in 2009 when the Rudd government offered an allowance of 10–30% on new equipment, plant and machinery.

During the same time, small businesses with less than $2 million in annual turnover were offered a 50% investment allowance.

This article was updated at 7.15am on Wednesday, October 7, 2020. 

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