Australia: ATO updated information on accelerated depreciation

Australia: Information on accelerated depreciation

The Australian Taxation Office (ATO) updated information for businesses regarding pending changes to the accelerated depreciation rules.

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Legislation, Treasury Laws Amendment (2020 Measures No.6) Bill 2020, would extend the temporary full expensing of depreciating assets measure and is pending Royal Assent.

As outlined by the ATO, the legislation introduces a new alternative test for temporary full expensing for businesses to qualify for immediate expensing of depreciating assets.


Background

The legislation, introduced into Parliament on 2 December 2020, would provide for an extension of the temporary full expensing of depreciating assets—a change to the original immediate expensing rules (i.e., those rules currently only allow businesses with aggregated turnover of less than $5 billion* to deduct the full cost of eligible depreciable assets of any value in the year they are first used or installed).

A new alternative test for temporary full expensing would be added with regard to qualifying for immediate expensing of depreciating assets. To satisfy the new test, companies would have to have:

  • Less than $5 billion in total statutory and ordinary income (excluding non-assessable non-exempt income) in either the 2018-2019 or 2019-2020 income year; and
  • Invested more than $100 million in tangible depreciating assets in the period 2016-2017 to 2018-2019. This excludes the cost of intangible assets or depreciating assets that are not located in Australia or used principally in Australia for the principle purpose of carrying on a business.

A further requirement in testing the $5 billion threshold would be that the 2019-2020 income year must have ended on or before 6 October 2020. Substituted accounting periods ending after 6 October 2020 in lieu of the 30 June 2020 income year (i.e., late balancers) could only apply the $5 billion income test to their 2018-2019 income year.

*$=Australian dollar


KPMG observation

This change, once enacted, means Australian businesses with an aggregated turnover of more than $5 billion due to the income of an overseas parent or associate company would now be able to qualify provided they meet the additional $100 million investment requirements. The reason for this minimum investment requirement is to provide access to the expanded immediate expensing measure is only available to entities that have a track record of making substantial investments in Australia. The government would also allow businesses to opt out of temporary full expensing and the backing business investment incentive on an asset by asset basis.


For more information, contact a KPMG tax professional in Australia:

Jenny Wong | +61 2 9335 8661 | jywong@kpmg.com.au

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