As one of the key changes for small business, the federal government has an increased the instant asset write-off threshold to $20,000 (up from $1,000). This allows small business taxpayer to get an immediate tax deduction for all individual depreciating assets that cost less than $20,000, which were purchased or installed ready for use from 7.30pm on 12 May 2015, to the extent it is used for an income producing purpose. This measure is due to expire at 30 June 2017.
Deductions for Small Business
For businesses registered for GST, the $20,000 threshold is calculated on a GST-exclusive basis. For businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.
Depreciating assets that cost $20,000 or more, which cannot be immediately writen-off, will be automatically depreciated at 15 per cent flat rate in the year it was purchased to the extent the asset is used for business purposes. The written down value of such asset can be depreciated at 30 per cent in subsequent financial years.
In the 2017 federal budget, the government has proposed an increase to the small business entity annual turnover threshold from $2 million to $10 million from 1 July 2016. This would create a tax planning opportunity for business with an annual turnover between $2 million to $10 million. However, it is still uncertain whether this proposal will become law. Therefore, for those businesses with a turnover in the range of $2 million to $10 million, you might want to be circumspect and delay the purchase or delivery of assets costing less than $20,000 until the financial year end, as such expenditure may then qualify for an immediate deduction.
According to the current tax law, the $20,000 small business instant asset write-off scheme will expire on 30 June 2017. The federal government has not indicated whether it will be extended or not.
Given the uncertainty above, we recommend that business factors this into its decisions on whether to change the timing of asset purchases.
If you need further explanation of the above, please contact one of our tax accountants at The Quinn Group on (02) 9223 9166 or submit an online enquiry.