Better tax treatments for asset write-offs

Friday 15 February 2013

By Mary-Ann Duncombe, Accru Hobart

Immediate deduction for assets costing less than $6,500

From 1st July 2012, the Australian Government increased the small business instant asset write-off threshold from $1,000 to $6,500.  This means businesses with an annual turnover of less than $2 million can now write-off assets costing less than $6,500 in the income year in which they start to use the asset, or have it installed ready for use.  Previously, these low-cost assets received an immediate deduction only if their cost as at the end of the income year in which they started being used was less than $1,000. 

Imagine you need four laptops worth $2000 each. Under the new rules, you could be eligible for the full $8000 tax deduction in the first year rather than just $1200 under the old scheme.

In the case of motor vehicles, an immediate write-off of the first $5,000 of any motor vehicle purchased costing at least $6,500 applies, with the balance of the purchase price being allocated to a small business depreciation pool.  For example, if you purchase a car for $45,000, you will receive an immediate write-off deduction of $5000, then depreciation applies to the balance of $40,000.

Simplified depreciation pooling arrangements

The long-life small business pool and the general small business pool have been consolidated into a single pool to be written off at one rate.  This means that from 2012-13, most depreciating assets that cost $6,500 or more (regardless of their effective life) can all be 'pooled' under the simplified depreciation rules and deducted at a single rate of 30%.

The exception is newly acquired assets that a small business starts to use, or has installed ready for use, during the income year. These are deducted at 15% (half the normal pool rate) for the first year. It does not matter whether an item is first used for a taxable purpose near the beginning of the year or the end of the year. The second and subsequent years’ rate is calculated as 30% of the value of each asset. 

Where a small business is planning to acquire a depreciating asset early in the next income year, it will usually be beneficial to make the purchase at the end of the current year.

Please consult with your local Accru adviser on these changes to make sure that you are getting the full benefit of the new ruling.