Simplified Small Business Depreciation Rules Cannington
Author │Hannah Webster – MAS Tax Accountants Cannington
Date: July 2017
Earlier in the year, the government announced the updates to the Small Business Depreciation Rules and how it may affect business tax. You may have seen or heard advertisements encouraging small businesses to make work-related purchases and later claiming up to a $20,000 asset tax deduction on your 2017 return. This sounds great in theory, but what does it all mean? To help you navigate the Tax Season, we have complied a simple overview of the Small Business Depreciation Rules Cannington.
For the past two tax years, the ATO have allowed an immediate asset write-off of up to $20,000, that businesses can claim on work-related items. This includes a wide range of business assets, such as equipment, machinery and large office supplies. However, there are a strict set of rules imposed by the ATO which apply to the asset deduction. The ATO calls this the Simplified Depreciation Rules and you can read about them on the ATO website.
Please note
The below information is a guide and that you should always seek professional advice from your Accountant. For expert, reliable tax advice tailored to your situation, please contact our Cannington Tax Accountants, on 0414 329 681 or via our contact form below.
Important factors to consider before making a large asset purchase for tax reasons, include:
- The Simplified Depreciation Rules only relate to Small Business with an annual aggregated turnover of under $10 million dollars.
- A Small Business Pool for all items over the $20,000.00 Write off amount must be made and the following depreciation used.
- 15 % for the 1st year (regardless of when you purchased the asset during the year
- 30 % each year after
- Deduct the balance of your small business pool at the end of the income year if the balance at that time (before applying the depreciation deductions) is less than the instant asset write-off threshold of $20,000.00.
Use the ATO Depreciation Calculator Tool to check if you are eligible.
Understanding the Costs, GST and Tax Allowances
The Cost of the asset includes both the amount you paid and any additional amounts you spend on transporting the item and/or the installation of the asset.
For example:
On 15th May 2017 Company A Pty Ltd purchased a Forklift for $15,000.00 and has to have it transported from another state which costs an additional $4000.00. This brings the total cost of the asset to $19,000.00, as this is still under the write off amount he can write the total amount off in this year’s Income tax return.
The Cost of the item also depends on your GST registration as per below:
- If you are registered for GST then the GST Exclusive amount is taken to be the cost of the Asset.
- If you are not registered for GST then the GST Inclusive amount is the cost of the asset.
Assets Exempt from the Depreciation Write-Off
There is are several items that are exempt from this depreciation tax write-off. Some of these include:
- Horticultural Plant
- Capital works
- Assets allocated to a low-value pool or software development pool
- Primary production assets of which the entity has chosen to use the normal depreciation rules rather than the simplified depreciation rules.
- Assets leased out to another party on a depreciated asset lease
The full list exempted list can be found at the ATO website.
New and Second-hand Items
The Simplified Depreciation Rules applies to both New and Second-hand items. Trade ins are treated as separate transactions so the total amount of the item is used.
For example:
Company A purchases a Van and trades in the old Van, the total that they pay is only $19,000.00 but this is not the amount that they can use on their Simplified Depreciation Schedule. The new Van cost $27,000.00 and the trade in of the old Van was $8,000.00, as such the New Van gets put into the Small Business Pool and is depreciated using the normal depreciation schedule.
If an asset is part of the Small Business pool and is sold (or lost or damaged and you receive compensation from your insurer) the balance of the pool is reduced by the amount of the sale or payout (only to the extent that the asset has been used and depreciated)
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For further information or to schedule an appointment with a tax professional, please contact MAS Tax Accountants Cannington below or call us on 0403 612 923
