Among the raft of new stimulus packages coming in the wake of the Covid-19 crisis is the $150,000 instant asset write-down. PKN looks at what it is, how you get it, and what it means.
There has never been a better time to invest in production equipment. The new coronavirus-driven instant asset write-off of up to $150,000 means that print business owners effectively receive an instant 27.5 per cent discount on capex. But you will need to be quick, the scheme finishes 30 June this year.
There is a whole host of great packaging production equipment that comes in at less than $150,000 cut-off.
For investments in kit over that amount, you can take advantage of a 50 per cent instant depreciation, which is similarly attractive. Both these schemes are effectively bringing forward depreciation from future years, but nonetheless represent a significant incentive to buy now.
From Australis Engineering, there is pallet handling equipment, the Hygenius Conveyor system, conveyor systems, and the simPAL Palletising System; from Selpak, we have its checkweigher; from Heat and Control, there are Ishida X-ray inspection systems, the CEIA THS-M21 multi-spectrum metal detector; from Hitachi, distributed by Visy Technology Systems, is the UX-Series of continuous inkjet printers; and Propac has its vertical fill form seal machine.
The $150,000 translates to a $41,250 discount on a piece of kit that you buy for $150,000, providing that your net profit for the year is at least $150,000.
For bigger purchases the benefits are even larger. If, for instance, you bought a $2m production line, you could depreciate 50 per cent of that against this year’s profits. If your profit was $1m, you would be saving yourself an instant $275,000 on the cost of that new line.
The instant asset write-off scheme has been in place for five years. It was initially set at $20,000 a year, then it went to $30,000, now the Covid-19 environment has seen the Morrison government supercharge it to keep business moving.
The instant asset write-off has always been popular with small – and medium-sized business, but now it gives manufacturers real benefit on more than computers and cars. But, it is expected to cost the taxpayer $2.5bn over the next two years.
As at the time of writing, the caveats are that the $150,000 scheme will end on 30 June this year, although the 50 per cent depreciation scheme runs until 30 June next year. And by those cut-offs, the equipment has to be installed and running, not just on order. But that should be no problem; suppliers are not short of stock.
What is available?
The good news for packaging businesses is that there is a host of production equipment that comes in at less than $150,000. A selection of available solutions can be found on the following pages.
*Please check your eligibility with your accountant, PKN Packaging News is not providing tax advice.
Q&A: $150,000 scheme
Who qualifies?
Any business with turnover less than $500m.
When does it run from?
12 March this year.
When does it run to?
30 June this year.
Is that when kit has to be ordered by or installed?
Installed.
How do I claim?
On your tax return as normal.
Is it just for one asset?
No, multiple assets for multiple $150,000s can be claimed for.
Who pays?
It will cost the taxpayer $2.5bn.
What qualifies?
Almost anything a packaging company needs.
Is it only for new kit?
No, it can be used for pre-owned equipment.
What happens if I miss the 30 June deadline?
The instant write-down will then be 50 per cent.
What if the kit I want is more than $150,000?
The instant write-down will then be 50 per cent.
Case Study: Top Pack buys new packaging line
Top Pack owners Jane and Steve are looking to upgrade their productivity and output options for their packaging business, with a new packing line identified as they key unit to take them forward.
They check out the options and are pleased to find they have several. They settle on a $150,000 top-of-the-range system.
The business has had a reasonable year; they are expecting net profit after their own salaries to come it at $180,000 for the year.
Tax on that net profit would be: $180,000 × 27.5% = $49,500.
However, the new instant asset write-down means Jane and Steve will be able to take a full $150,000 off that net profit figure as the cost of their new packing line: $180,000 – $150,000 = $30,000.
Tax on net profit of $30,000 is: $30,000 × 27.5% = $8,250.
Therefore, they have reduced their tax bill by 80 per cent or $41,250.
However, Jane and Steve must keep in mind that they will not be able to claim any depreciation for the ensuing tax years as they would normally have done.
