Option to Accelerate the Write-Off of the Cost of Acquiring Plant and Machinery

Option to Accelerate the Write-Off of the Cost of Acquiring Plant and Machinery

Measures Introduced in Budget 2020

Impact

Action Required

Qualifying capital expenditure incurred on the acquisition of plant and machinery in the financial year 2020 (Year of Assessment (
"YA") 2021) will qualify for accelerated write-off over two years. The rates of write-off are 75% of the cost incurred in the first year (i.e. YA 2021) and the remaining 25% of the costs in the second year (i.e. YA 2022).

This option once elected is irrevocable. Capital allowances claimed under this option cannot be deferred unlike the other options currently available.

This option provides for faster write-off as compared to the current option of writing off the costs over 3 years for plant and machinery that do not qualify for 1 year write-off.

There will be about 41.7% more capital allowances on the cost of plant and machinery to be offset against YA 2021 trading profits of a business, if the accelerated 2 years write-off option is elected over the existing 3 years write-off. This is because the 2 years write-off option provides for 75% write-off in the first year while the 3 years write-off options provides for 33.3% write-off in the first year.

This measure will only have a cash flow impact as the 2 years write-off option does not enhance the amount of allowances that can be claimed like in the Productivity and Innovation Credit scheme that was available from YA 2011 to YA 2018.

The 2 years write-off option is available for plant and machinery acquired in the financial year 2020.

Businesses that have not closed their financial year for 2020 and have the financial resources, may consider investments in new plant and machinery during this period of economic downturn to tap on opportunities when the economy rebounds.

For businesses that have already invested in new plant and machinery in the financial year 2020, they can review their tax position for YA 2021 to ascertain if they should be electing for the 2 years write-off option or the existing options under the Income Tax Act.