On the 2015 budget night it was announced that small business entities would be able to claim an immediate deduction for individual assets costing less than $20,000. What exactly does the $20k small business write off mean to you?
Prior to May 15 small business entities (SBE’s) making use of the simplified depreciation rules were able to claim an immediate write off for assets costing $1,000 or less. Assets costing more than $1,000 were added to a general small business pool where they were depreciated at a rate of 15% in the year of acquisition and then at 30% in each subsequent year.
Under the new rules that threshold has increased to $20,000 meaning any assets purchased on or after 12 May 2015 7:30pm AEST will be eligible for an immediate write off as long as they individually cost less than $20,000. For businesses registered for GST, the asset value is the GST exclusive cost. For businesses not registered for GST the asset value is the GST inclusive cost. The increased threshold will only apply until 30 June 2017.
The $20k small business write off also applies to an existing general small business pool. If the closing balance of that pool falls below $20k or less the pool balance must be written off.
Assets excluded from the write off:
• 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 pool or software development pool – subject to the deduction rates applicable under those rules;
• Primary production assets for which the entity has chosen to use the normal depreciation rules rather than the simplified depreciation rules; and
• Assets leased out to another party on a depreciating asset lease.
You can only claim a write off for a newly purchased motor vehicle if you’re using the logbook method or 1/3 of cost method. Under the log book method your deduction is limited to the extent of your logbook percentage.
The write off is limited to the extent that the asset is used for business, so be sure to factor in the private use component when considering how much of a deduction you will be entitled to claim. Also be mindful that if an asset costing more than $20k has a business use of under $20k (i.e. $30k car with a 50% business use) you will not be able to claim an immediate write off.
Unlike in the past businesses that have opted out of the simplified depreciation rules will not be subjected to the ‘lock-out’ rule. SBE’s that have opted out can now opt back and take advantage of the increased threshold.
Pro Tips
- Be sure to check the dates you purchased your assets and make sure you’re considering how GST impacts the value of your asset.
- Remember that you can opt back in to the simplified depreciation rules and take advantage of the increased threshold.
- Be mindful of private use apportionments when considering how much of a write off you’ll be entitled to claim
- Second hand assets are also eligible for the write offs
- The write off is a choice. There may be circumstances (e.g. low income years) where it will not be beneficial to claim the immediate write off.
Author: Heather Cox
Email: heather@faj.com.au
