Issue 34 2013

Write-off up to $6,500 instantly

Simpler depreciation laws to assist small business

UPDATE: A proposal was made to reverse this new ruling on 1st January 2014 – read more information here.

Changes to the way small businesses are able to claim depreciation have been made from the 2012-2013 financial year.

The small business instant asset write-off threshold has increased from $1,000 to $6,500. This new rule allows businesses to write-off any depreciating asset with a total cost less than $6,500. Previously, the cost threshold was $1,000; anything over this cost could not be claimed as an instant deduction.

Changes have also been made to the way businesses apply pooling to their assets for depreciation purposes. Previously, two pools were available for small businesses to use when depreciating assets; the general small business pool for assets with an effective life of less than twenty-five years, and the long-life small business pool for assets with an effective life of twenty-five years or more. From the 2012-2013 financial year, these pools will be consolidated and items which apply to these pools will now be written off at one rate.

To calculate the deductions for these pooled assets, the closing balance of the long life pool and the general small business pool for the 2011-2012 income year will be added together in order to calculate the opening balance of the consolidated general small business pool for the 2012-2013 income year.

The remaining value of depreciable assets plus the value of any additional assets purchased within the last financial year can be allocated to the general small business pool and written off at a rate of 15% in the year of purchase, and at 30% for subsequent years.

Small businesses are now able to claim an initial deduction of up to $5,000 for motor vehicles acquired in the 2012-2013 financial year and for subsequent years after. This new ruling changes the way depreciation of a motor vehicle is calculated. Deductions are brought forward, reducing the cost of owning a motor vehicle in the first year.

Where a vehicle is used exclusively for business and has not been written off immediately under the instant asset write-off, the cost of the motor vehicle is added to the small business pool and the deduction is made up of $5,000 plus 15% of the vehicle’s remaining value.

In order to qualify for these concessions, businesses must fall under the Australian Taxation Office (ATO) definition of a small business. The ATO consider a small business to be an individual, partnership, trust or company with an aggregated turnover of less than two million dollars. An aggregated turnover is the annual turnover of any business that an individual is connected or associated with.