Recently Treasury Laws Amendment (2020 Measures No 6) Bill 2020 was tabled in parliament and it provides a critical update to Federal Treasurer Josh Frydenburg's budget night announcements regarding the full expensing of eligible assets through to 30 June 2022.
Under the revised provisions, eligible businesses now have the ability to choose whether or not they wish to fully expense an eligible asset on an asset-by-asset basis. This was previously a serious concern for many business owners who were worried about the impact in future years for assets which had been fully written-off (assessable balancing adjustments) and the impact on banking covenants where Taxable income was effectively wiped out.
The ability to opt out of temporary full expensing assets allows eligible businesses to apply the standard capital allowance rules under Division 40 on an asset-by-asset basis if they do not wish to apply the full expensing model. This applies to entities with an annual turnover of less than $5 billion.
There appears to be a major failure in the Bill as small business entities (those with a turnover of less than $10 million) may not be able to make a choice if they are currently applying the Capital allowances for small business entities provisions contained in Subdivision 328-D. The Government did not include this limitation when they announced the opt-out choice and it does not appear to be their intention. We understand the CAANZ has written to Treasury to seek further clarity on this apparent oversight.
Please note, the choice must be made in the approved form and must be given to the Commissioner of Taxation by the day the company lodges its Tax return for the income year in which the asset relates. The choice to opt-in or opt-out of the instant asset write-off is irreversible.