New laws have passed regarding depreciation that allow small businesses to claim an immediate deduction for assets they start to use – or have installed ready for use – provided each depreciable asset costs less than $20,000. This will temporarily replace the previous instant asset write-off threshold of $1,000.
This measure starts 7.30pm (AEST) 12 May 2015 and will end on 30 June 2017.
Know the Depreciation Rules
Who is eligible?
Any business that meets the definition of a small business entity, that is one with an aggregated turnover less than $2 million, may be eligible to claim an immediate deduction for the cost of depreciating assets acquired for less than $20,000. This means you must be carrying on a business.
Assets costing $20,000 or more
For depreciating assets costing $20,000 or more, small businesses can elect to use the pooling arrangements and depreciate the cost of such assets at 15 per cent in the first year and a diminishing value rate of 30 per cent on the opening pool value each year thereafter.
What assets are eligible?
All assets (including new or second hand) are eligible, excluding the following:
• Horticultural plants – subject to their own ‘uniform capital allowance’ rules (UCA);
• Capital works – subject to their own ‘capital works’ depreciation rules;
• Assets allocated to a low-value or software depreciation pool – subject to the depreciation rules under those pools;
• Primary production assets – you can choose to use the specific UCA rules or accelerated depreciation rules; and
• Assets leased out to another party on a depreciating asset lease.
GST inclusive or exclusive?
If the entity is registered for GST, then the GST exclusive amount is taken to be the cost of the asset. Where the entity is not registered for GST, then the GST inclusive amount is taken to be the cost of the asset.
If you bought a car for $25,000 with a trade in value of $9,600, requiring you to pay $15,400, the asset still costs $25,000; consequently, it cannot be immediately written-off.
Financing the purchase of an asset
To be eligible for a deduction the asset does not have to be paid for outright, it could be purchased under a financing arrangement. However, if you acquired the asset under hire-purchase or lease agreement no deduction is available as the finance company owns the asset until it is paid off.
An eligible small business from 7.30pm (AEST) 12 May 2015 can claim an immediate deduction for any software purchased off the shelf, costing less than $20,000 that is used exclusively in the business.
If you have any queries please contact our office on 02 9223 9166 or submit an online enquiry.