Provisions in this year’s budget means all capital equipment in the packaging industry is now discounted at either 27.5 per cent or 30 per cent in the year it is purchased. Treasurer Josh Frydenberg turbo-charged the instant asset write off, ditching the previous cap in favour of the full value of the equipment.
Most business that have a turnover of less than $5bn in Australia will be able to claim the full value of any investment in plant and equipment on this year’s tax return, or next year's if they invest after 30 June.
This is effectively a 27.5 per cent discount on companies with a turnover of less than $50m, 30 per cent for those over $50m – the corporate tax rate – on all new installations, providing the business is in profit, claimed in the next tax return.
The government says, “from 7:30pm (AEDT) on 6 October 2020 until 30 June 2022, businesses with turnover up to $5bn will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed.”
The new investment allowance builds on the current instant asset write-off, which was limited to $150,000. It means the typical depreciation periods – known as effective life, which could typically be between three and ten years depending on the type of equipment – are now consolidated into just one year.
The new scheme covers all equipment purchased from today and used before 30 June 2022. It also covers upgrades to existing equipment, and second-hand equipment. Buildings remain excluded.
In his budget address at Parliament, Treasurer Josh Frydenberg said the programme plan was the biggest investment incentive from any Australian government ever. He said: “Every sector of our economy, every corner of our country, will benefit.”
Spruiking the plan, Frydenberg said: “It will unlock investment. It will dramatically expand the productive capacity of the nation and create tens of thousands of jobs. It will be small and medium-sized business that will sell, supply, install, service, and maintain the equipment.”
The plan is expected to cover $200bn worth of capex, and will cost an estimated $27bn, but the government says that will eventually come down to $3.2bn, as depreciation will not be paid out in following years. Economists say there has to be a time limit on the programme – currently 30 June, 2022 – otherwise there would be no incentive to invest.
PKN is not providing tax advice, please check with an authorised accountant for full details.