From the 2013 income year the small business entities (SBE) capital allowance rules were amended to make the SBE pooling arrangement simpler. A SBE is a business (including the individual, partnership, company or trust) that carries on the business activity with aggregated turnover less than $2 million per annum.

There are special concessionary capital allowance rules available for SBEs, in relation to depreciating assets. A depreciating asset is an asset that has a limited “effective life” and declines in value over time, for example, machinery and equipment, tools, office furniture and motor vehicles. Land and items of trading stock are specifically excluded from the definition of depreciating asset.

The simplified depreciation rules allow the SBE taxpayer to immediately write-off the depreciating asset under a certain threshold or place them into the small business pool.

Before the changes, the depreciating assets with an effective life of less than 25 years were allocated into a general small business pool and depreciated at the rate of 30%. The depreciating assets with an effective life of 25 years or more were placed in a long-life small business pool and depreciated at the rate of 5%. Most depreciating assets costing less than $6,500 each were eligible for the immediate write-off (the write-off threshold was $1,000 in the 2012 income year). The deduction is limited to the taxable purpose portion. Where an asset is a motor vehicle an SBE’s taxpayer is entitled to an immediate deduction of up to $5,000 for the taxable purpose of a motor vehicle.

Under the new rule, assets in an SBE’s long life small business pool were consolidated with the general small business pool, i.e. assets previously held in a long life small business pool were transferred to the SBE’s general small business pool. The long life small business pool has been abolished. This means that an SBE’s taxpayer is entitled to pool all depreciating assets costing more than $6,500 to the general small business pool. The assets to be depreciated at 15% in the first income year they are allocated to the pool and at a special diminishing pool rate of 30% in the following income years. The rules applies to all depreciating assets regardless of the effective life.

There are plans to reduce the write-off threshold for small business pool from $6,500 to $1,000 in 2014 and later income years. However, the proposed changes do not affect the simplified pooling arrangements effective from the 2013 year. The experienced team of accountants and tax agents here at The Quinn Group assist you. Call (02) 9223 9166 to book an appointment or submit an enquiry online.

 

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