Eligible businesses for the 2019–20 and 2020–21 income years, may be able to deduct the cost of new depreciating assets at an accelerated rate using the Backing business investment rules.
The accelerated depreciation deduction applies for each new asset in the income year that the asset is first used or installed ready for use for a taxable purpose. The usual depreciating asset arrangements apply in the subsequent income years that the asset is held.
You use your tax return to claim the deduction or to opt out of backing business investment for an asset.
Businesses are eligible for the backing business investment deduction if they have an aggregated turnover of less than $500 million in the year they are claiming the deduction. The deduction is available in the 2019–20 and 2020–21 income years.
Eligible businesses must check the eligibility criteria carefully before making a claim as we will review claims as part of our compliance activities on the economic stimulus measures.
To be eligible to apply the accelerated rate of deduction under backing business investment, the depreciating asset must:
- be new and not previously held by another entity (other than as trading stock)
- be first held on or after 12 March 2020
- be first used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021
- not be an asset to which an entity has applied either
There is no limit on the number of eligible assets that you can apply accelerated depreciation to in an income year under backing business investment.
Eligible assets do not include:
- second-hand depreciating assets
- some specific Division 40 assets subject to low value and software development pools
- certain primary production assets (water facilities, fencing, horticultural plants or fodder storage assets), unless you are a small business entity that chooses to apply the simplified depreciation rules to these assets
- buildings and other capital works for which you can deduct amounts under Division 43
- assets that will
- never be located in Australia
- not be used principally in Australia for the principal purpose of carrying on a business
- other specific capital asset and expense deductions
- assets you were committed to acquiring before 12 March 2020.
There is no limit on the cost of an eligible asset, unless it is a passenger vehicle.
You cannot claim backing business investment if you use temporary full expensing or instant asset write-off for the same asset.
We have prepared a high-level snapshot to help you work out how the following may apply to you:
- backing business investment
- temporary full expensing
- instant asset write-off
- general depreciation rules.
Once you have worked out your deduction, you claim this when lodging your tax return for the income year.
You can make a choice to opt out of backing business investment for an asset if you are not using the simplified depreciation rules for small business.
The choice can be made on an asset-by-asset basis. If you choose not to apply backing business investment to an asset, you apply the general depreciation rules to that asset.
You must tell us your choice to opt out:
- in your tax return
- if using a 2021 tax return, complete the Backing business investment labels (V, W and X) at Capital allowances
- otherwise, follow the tax return instructions and include your opt out choice as additional information to your tax return
- by the day you lodge your tax return for the income year to which the choice relates.
The choice cannot be changed once made.
We can in some instances allow additional time for you to make a choice to opt out of backing business investment. If you are seeking additional time to make this choice, you will need to write to us:
- clearly marking your request as ‘Backing business investment discretion request’
- outlining why you need additional time to make the choice.
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You can post your request to us at:
Australian Taxation Office
PO Box 3000
PENRITH NSW 2740
Different rules apply when working out your deduction, depending on whether you are using the simplified depreciation rules for small business.
You can work out the deduction you can claim from a depreciating asset for capital allowances and capital works purposes using our online Depreciation and capital allowances tool.
Small business entity
If you are a small business with an aggregated turnover less than $10 million, and you use the simplified depreciation rules, you add to your general small business pool assets that:
- cost $150,000 or more (instant asset write-off applies to assets costing less than this)
- are eligible for backing business investment
- are not eligible for temporary full expensing.
You then deduct an amount equal to 57.5% (rather than 15%) of the business portion of a new depreciating asset in the year you add it to the pool. In later years the asset will be depreciated under the general small business pool rules.
Normal rules apply to assets allocated to the general small business pool that are not eligible for backing business investment.
Example: small business benefits from backing business investment
NC Transport Solutions Pty Ltd operates a haulage business. NC Transport Solutions Pty Ltd has an aggregated turnover of $8 million for the 2019–20 income year. On 1 May 2020, NC Transport Solutions Pty Ltd purchases a new truck for $260,000, exclusive of GST. For the 2019–20 income year, the truck was only used for business purposes.
Under past tax arrangements, NC Transport Solutions Pty Ltd would depreciate the truck using its general small business pool. This means that NC Transport Solutions Pty Ltd would deduct 15% of the truck’s value when it added the asset to the pool, leading to a tax deduction of $39,000 for the 2019–20 income year (assuming there are no other assets in the pool).
Under backing business investment, NC Transport Solutions Pty Ltd will instead claim a deduction of 57.5% when it adds the truck to the pool, leading to a deduction of $149,500 for the 2019–20 income year.End of example
Other business entities
If you are an entity with aggregated turnover less than $500 million in the income year and do not use the simplified depreciation rules, you may be eligible to deduct an amount under backing business investment if the asset is eligible and you cannot or have chosen not to apply temporary full expensing to that asset.
The amount your entity can deduct in the income year the asset is first used or installed ready for use is:
- 50% of the cost (or adjustable value where applicable) of the depreciating asset
- plus, the amount of the usual depreciation deduction that would otherwise apply but calculated as if the cost or adjustable value of the asset were reduced by 50%.
Effectively, the backing business investment deduction applies to eligible assets with a cost (or adjustable value if applicable) of $150,000 or more in the:
- 2019–20 income year, if the eligible asset is first held on or after 12 March 2020 and first used or first installed ready for use for a taxable purpose in the 2019–20 income year
- 2020–21 income year, if the eligible asset is first committed to or held on or after 12 March 2020 and first used or first installed ready for use for a taxable purpose in the 2020–21 income year.
A car limit applies to any sized business that purchases a passenger vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than one tonne and fewer than 9 passengers. You must reduce the cost of the vehicle to the car limit before calculating your depreciation. You cannot claim the excess cost of the vehicle above the car limit under any other depreciation rules.
The car limit is:
- $57,581 for the 2019–20 income year
- $59,136 for the 2020–21 income year
- $60,733 for the 2021–22 income year.
A vehicle's cost (before applying the car limit, if applicable):
- does not include the value of a trade-in
- excludes the GST amount if you are registered for GST
- includes the GST amount if you are not registered for GST.
The one tonne limit is the maximum load your vehicle can carry, also known as the payload capacity. The payload capacity is the gross vehicle mass (GVM) as specified on the compliance plate by the manufacturer, reduced by the basic kerb weight of the vehicle.
The basic kerb weight is the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and factory-installed options. It does not include the weight of passengers, goods or accessories.
Payload capacity = GVM – basic kerb weight
Research and development
If backing business investment is to be applied to the purchase of an asset used for research and development (R&D) purposes, you can only claim the R&D tax offset for the portion of the decline in value that is for R&D use. In working out the amount for R&D use, you must subtract any non-R&D use (including the taxable purpose portion and private use portion).
If you are a small business and you have used your asset for R&D activities, you cannot claim the backing business investment for that asset under the simplified depreciation rules. The normal depreciation rules will apply.
Example: medium sized business benefits from backing business investment
J Construction Solutions Pty Ltd has an aggregated turnover of $200 million for the 2020–21 income year. On 1 July 2020, J Construction Solutions Pty Ltd installs a $1 million truck mounted concrete pump. For the 2020–21 income year, the pump was only used for business purposes.
The concrete pump was held before 2020 budget time so does not qualify for temporary full expensing. However, it does qualify for backing business investment.
Under past tax arrangements, in the first year J Construction Solutions Pty Ltd could claim 30% depreciation when using the diminishing value method (based on the asset’s effective life of six and two thirds years).
Under the backing business investment, J Construction Solutions Pty Ltd can claim a depreciation deduction of $650,000 in the 2020–21 income year. This consists of 50% of the concrete pump’s value under the backing business investment ($500,000) plus 30% of the remaining $500,000 under existing depreciation rules ($150,000).
Example: medium sized business committed to acquiring asset prior to 2020 budget time
F Pty Ltd has an aggregated turnover of $150 million for the 2020–21 income year. On 1 October 2020, it entered into a contract to purchase a new asset for $200,000. The contract was not completed until November 2020, post 2020 budget time – when the asset was delivered and installed ready for use solely for taxable purposes.
As F Pty Ltd has an aggregated turnover of $50 million or more and the asset purchase was committed to prior to 2020 budget time, F Pty Ltd is ineligible to apply temporary full expensing to the asset. However, as the purchase and installation meet the requirements for backing business investment, F Pty Ltd can claim an accelerated depreciation deduction under backing business investment.
Example: medium sized business acquired asset in 2020–21 and improved the asset both before and after 2020 budget time
K Pty Ltd has an aggregated turnover of $60 million for the 2020–21 income year. It acquired a new depreciating asset for $160,000 on 1 July 2020 and immediately began using the asset solely for a taxable purpose.
On 28 September 2020, K Pty Ltd carried out some improvements on the asset, incurring costs of $25,000. These costs were included in the asset’s second element of cost at that time.
On 20 November 2020, K Pty Ltd makes further improvements to the asset incurring another $30,000 in costs.
K Pty Ltd must work out its decline in value for the income year. K Pty Ltd uses the temporary full expensing rules to work this out because some part of the asset’s cost is eligible for temporary full expensing (the further improvements costing $30,000 incurred post 2020 budget time).
In working out the decline in value for the 2021 income year under temporary full expensing, K Pty Ltd must work out a component for its pre-budget time cost by using the Backing business investment rules.
For the 2020–21 income year, K Pty Ltd can claim the following:
- $92,500 – which is the amount worked out under backing business investment, that is 50% of
- the $160,000 cost of acquisition
- the $25,000 cost of the pre-2020 budget time improvement to the asset
- plus $30,000
- which is all its expenditure during the temporary full expensing period (post 2020 budget time and before 30 June 2023)
- plus the depreciation
- which could be claimed under Division 40 on the balance of the cost of the asset
- that is, $92,500 (the total amount spent on the asset, less the amounts claimed under backing business investment and temporary full expensing).
Alternatively, K Pty Ltd could choose not to apply temporary full expensing and could work out and claim its decline in value deduction under backing business investment or the general depreciation rules.End of example