If you’re heading up a Australian subsidiary of a global company, read on for the FY2022 tax changes.
In the 2020-21 Federal Budget, the Government introduced a measure that allows businesses with turnover under $5bn* to immediately deduct the cost of new depreciable assets and the cost of improvements to existing assets in the first year of use. This means that an asset’s cost will be fully deductible in the year it’s installed ready for use, rather than being claimed over the asset’s life. And, there is no cap on the cost of the asset.
Last month the Government announced it will modify the rules again enabling a broader range of businesses to access the instant write-off.
The amended rules will enable businesses with an aggregated annual turnover of $5bn or more (the current maximum threshold) to access the measures if they can satisfy an alternative test. Entities are able to pass this test if they have:
Less than $5 billion in total statutory and ordinary income in either the 2019 or 2020 income year; and
Incurred more than $100 million in expenditure on tangible depreciating assets between the 2017 and 2019 income years.
This will allow some Australian businesses that are connected with large global groups to access the measure.
In addition, the Government will enable businesses to opt-out of using the new instant asset write-off and accelerated depreciation rules on an asset by asset basis. Currently, the rules apply automatically if certain conditions are met, which for some businesses is not an effective use of the deduction. However, at this stage, it appears the choice to opt out of the instant asset write-off might not be available to small business entities that choose to apply the simplified depreciation rules.
*Aggregated turnover. Aggregated turnover is your turnover plus the annual turnover of any business connected with you or that is your affiliate.