As a small business owner, you've probably heard all the buzz surrounding the government's $20,000 instant asset write off. To separate fact from fiction, we've delved deeper into this new legislation to explore and clarify the different aspects to ensure our clients receive the maximum tax benefit.
For small businesses, (meaning businesses with an aggregate annual turnover of less than $2 million) the existing accelerated depreciation rules will be amended by temporarily increasing the threshold under which certain depreciating assets, costs incurred in relation to depreciating assets and general small business pools can be written off. The instant write off threshold was $1,000 which has increased to $20,000 for all assets that were first acquired at or after 7:30pm AEST on 12 May 2015 and first used or installed ready for use on or before 30 June 2017.
Breakdown of Key Features
- The asset can be new or second-hand
- Depreciating assets that do not meet the timing requirements will continue to be subject to the previous $1000 threshold
- SMEs can claim an immediate deduction in their next tax return for assets purchased within the required timeframe
- The deduction for assets that cost less than $20,000 is claimed in the income year in which the asset was first used or installed ready for use
- The asset must be "first acquired" during the time period requirements. An asset will not qualify if it was previously acquired at an earlier time, temporarily disposed of, and then reacquired at or after the 7:30pm start time
- Depreciating assets that are first acquired before the 7:30pm start time, will continue to be subject to the $1000 threshold, regardless of when they were first used or installed ready for use. If an asset is acquired after the 7:30pm start time but is not first used or installed ready for use before the end time of 30 June 2017 then the threshold will revert back to $1,000 for these particular cases
- For assets that are first used or installed ready for use on or after 1 July 2017, the previous threshold of $1,000 will apply
- SMEs can claim a deduction for an amount spent on improving or transporting a depreciating asset (known as the second element of the costs of depreciating assets) that are first used or installed ready for use in a previous income year. The same $20,000 threshold and time requirements also apply
- If a SME incurs a cost of $20,000 or more that is included in the second element, and the depreciating asset has already been written off in a previous income year, then the cost incurred will be treated as having a value equal to the amount that is included in the second element of its cost. In this case, the asset would then be allocated to the small business entity's general small business pool, deducted at a rate of 15% in the income year in which the amount was incurred, then deducted at a rate of 30% in following income years.
Proceed with Caution
The government has declared that if these types of events, wherein SMEs systematically engage in artificial or contrived arrangements designed to wrought the increased threshold and the general anti-avoidance provisions became too administratively difficult to apply; then certain amendments would be enforced to curb such behaviour to ensure the integrity of the small business capital allowed provisions is maintained.
Whilst the new threshold rules are very enticing to small businesses and should be seen as a valuable incentive that should be used wisely, spending up to $20,000 on an asset just to get the tax deduction may not always be practical. As mentioned above, there are finer points to consider regarding the new rules and it's always best to seek professional advice prior to splurging on unnecessary items. For more information on asset deprecation or general business advice, contact us on 02 9299 7044 or via firstname.lastname@example.org.