In the 2015-16 federal budget, the government increased the small business immediate deductibility threshold from $1,000 to $20,000, which was originally due to end at June 30, 2017. But a law amendment bill has recently been passed by Parliament that extends that measure by 12 months until June 30, 2018, after which the deductibility threshold will revert to $1,000.
At the time of the original announcement, small businesses were defined as having an aggregate annual turnover of less than $2 million.
Announcements from the most recent federal budget however, and the new legislation, make it clear that the depreciation measure will not only be extended for a year but also extend to businesses with an aggregated annual turnover of less than $10 million.
Small businesses can therefore continue to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by June 30, 2018. Only a few assets are not eligible (such as horticultural plants and in-house software).
The cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it ready for use.
If you are registered for the goods and services tax (GST), you exclude the GST amount you paid on the asset when you calculate your depreciation amounts (and your instant asset write-off threshold is $20,000 exclusive of any GST).
If you are not registered for GST, you include the GST amount you paid on the asset in your depreciation calculations (and your instant asset write-off threshold is $20,000 inclusive of any GST).
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into a small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. This means you cannot use the accelerated depreciation for the first $20,000 of the asset, it’s total net value must be $20,000 or less. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
When you trade-in a car or any other asset, typically the agreed price of your trade-in is deducted from the cost of your new asset. The sale and purchase of the two assets generally appear as one transaction.
However, for the purpose of the simplified depreciation rules, the transactions are considered separate. If the purchase price of your asset (irrespective of the amount you were paid for your trade-in) is $20,000 or more, it needs to be added to the small business pool and can’t be immediately written-off.
Your depreciation deduction is limited to the percentage your asset is used for business or other taxable purposes (for example, to manage your investments or rental properties).
This means that in determining whether the instant asset write-off applies, you take into account the full cost of the asset, but your deduction is limited to an estimate of how much you use the asset in earning assessable income.
For example, if you buy a car for $19,000, and you estimate it is used 50% for business purposes and 50% for private purposes, it is immediately written-off but your deduction is $9,500.
The current “lock out” laws for the simplified depreciation rules (preventing small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until June 30, 2018.
ATO Important Dates August 2017
Employers who lodge a Superannuation guarantee charge statement – quarterly can choose to offset contributions they paid late to a fund against their super guarantee charge for the quarter. They still must pay the remaining super guarantee charge. (Note: The super guarantee charge is not tax deductible.)
Use the ATO’s Super guarantee charge statement and calculator tool to work out the super guarantee charge and prepare the Superannuation guarantee charge statement – quarterly.
To speak to one of our professional team please call (02) 6684 2502 or visit our website www.wdnicholls.com.au to learn more about what we do and how we can help you reach higher.