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$20k Tax Break for Businesses is now even better!

Businesses have always been able to use depreciating assets as tax deductions. However, the government has now simplified the rules so that it’s easier for small businesses to take advantage of these deductions. They’ve made it possible for small businesses to write off depreciating assets in one fell swoop, rather than at a set percentage every year.

This applies to:

  • New purchases up to $20,000 made 12/05/2015 – 30/06/2017.
  • Purchases up to $1,000 made 01/01/2014 – 12/05/2015.
  • Purchases up to $6,500 made 01/07/2012-31/12/2013.

For other depreciating assets that don’t meet the immediate-write-off guidelines, new pooling guidelines have been set. You can ‘pool’ your assets, so that depreciation doesn’t have to be calculated on every single item:

  • Use a ‘general small business pool’ for all depreciating assets (that haven’t already been written off).
  • Immediately deduct the entire value of the general small business pool if it’s under $20,000.
  • Depreciate assets in the general small business pool, if it’s over $20,000, at 30% annually.

You can also depreciate newly-acquired assets (that haven’t already been written off) at 15% in the first year, regardless of when in the year they were acquired. Be aware that these changes are currently temporary, and will end 30/06/2017.

What counts as a ‘small business’?

The ATO says that your business counts as a ‘small business’ if “you are an individual, partnership, company or trust that:

  • is carrying on a business
  • has less than $2 million aggregated [annual] turnover.”

Which assets does this apply to?

“A depreciating asset is an asset that has a limited effective life and is expected to decline in value over the period you use it. Land, items of trading stock and certain intangible assets are not depreciating assets.”

For exceptions, see the list of exclusions.

How to best take advantage of the new depreciation rules

The great thing about these changes is that you don’t have to go out and buy an asset in order to receive the benefit. You can now take advantage of the pool you already have if it is under $20,000.

If you do plan to buy new assets, consider:

  • Whether the new asset will assist your business. It’s all too tempting to buy new assets simply because the new rules are available. However, it still costs your business money. New purchases should improve your workflow or increase your business’s capacity in some way.
  • How you can get the best cash-flow benefit for your business. You might find that it’s better to get finance on the asset than to pay cash for it. This minimises your immediate outlay while still maximising the tax deduction.

Examples

The government has put together some examples to make the changes clearer for small businesses. To view an example customised to your situation:

1. Go to Budget 2015’s Small Business Tax Relief Examples page.

2. Select your industry sector.

3. Select your business type.

4. Click on ‘TELL ME WHAT THE BUDGET MEANS TO ME’.

More information

Growing jobs and small business – expanding accelerated depreciation for small businesses

Budget announcement

Budget Paper No. 2

Are you a small business entity?

Simplified depreciation rules

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