Immediate $20,000 write-off for small businesses
In the recent Federal Budget, the government announced a series of measures to assist small businesses, with one of these being an immediate write-off for depreciating assets that cost less than $20,000 This measure applies until June 30, 2017.
In a nutshell
Before this write-off measure was announced, eligible small businesses were allowed to immediately deduct the cost of assets acquired for less than $1,000. The effect of the latest announcement is that the $1,000 threshold has been temporarily increased to $20,000. The threshold reverts to $1,000 after June 30, 2017.
Eligible "small business entities" can elect to use the simplified capital allowance rules. But note that this measure also disables the "five-year lock out" rule, so that businesses that previously opted out of the small business capital allowance rules can take advantage of the concession. A "small business entity" is defined as any business with an annual aggregated turnover of less than $2 million. But remember that "aggregated turnover" takes into account not only the annual turnover of the business but also that of any entities "connected with" or that are "affiliates" of the business.
How does the write-off work?
A small business will be able to immediately deduct the "taxable purpose proportion" (that is, the amount used in the business for income producing purposes) of each depreciating asset costing less than $20,000.
For assets that cost $20,000 or more, small businesses can elect to use a general small business pool and depreciate the cost of such assets at 15% in the first year and 30% each year thereafter.
Is the threshold inclusive or exclusive of GST?
Broadly, the cost of the depreciating asset is reduced by the input tax credits a business may be entitled to claim for GST purposes. Therefore, for a business that is registered for GST, the cost of the depreciating asset is its GST-exclusive value provided that the business can fully claim the credit. If a business is not registered for GST, the cost of the depreciating asset would be its GST-inclusive value because it is not entitled to claim input tax credits.
When can you claim a deduction?
The deduction is claimed in the relevant income year for which the asset is "first used or installed ready for use" within the relevant period that this measure applies. There will therefore be no deduction available at the time that a business places an order and/or makes a deposit – the asset must also be actually used or be installed and ready to use within the relevant timeframe.
Are 2nd hand assets eligible?
Both new and second hand assets will be eligible, except for a small number of exclusions which receive different depreciation treatment for tax purposes.
Excluded assets include but limited to such items as: capital works, primary production assets for which the entity has chosen to use the normal depreciation rules, and assets leased out to another party on a depreciating asset lease.
Can a deduction be claimed for a general pool balance where its value is less than $20,000?
Yes. Before this measure being enacted, small businesses with a general pool balance of less than $1,000 at the end of the income year were entitled to write-off that balance (referred to as the "low value pool" threshold). Now, the low pool value threshold has also increased to $20,000.
This means that an immediate deduction is available if the pool balance is less than $20,000 at the end of an income year. A small business therefore is able to claim an immediate deduction for the relevant year if its pool balance is less than $20,000 for the 2014-15, 2015-16 and 2016-17 income years.
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