Small business concessions: changes to simpler depreciation rules apply from 2012-13

Small business concessions: changes to simpler depreciation rules apply from 2012-13

From the 2012-13 income year:

  • the small business instant asset write-off threshold has increased from $1,000 to $6,500
  • small businesses can claim an accelerated initial deduction for motor vehicles acquired in 2012-13 and subsequent years
  • 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.

These amendments only apply to you if you are a small business that has an aggregated turnover of less than $2 million. Your aggregated turnover includes the annual turnover of your small business and the annual turnovers of any connected or affiliated businesses.

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These changes apply from 2012-13 onwards.

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For more information about eligibility for small business concessions, refer to Guide to small business entity concessions.

Can you claim an instant asset write-off?

From the 2012-13 income year onwards, you can choose to use the capital allowance provisions in Subdivision 328-D to immediately write-off (that is, claim a deduction for) a depreciating asset that cost less than $6,500.

You can write the depreciating asset off at the end of the income year where you either:

  • start to use it for a taxable purpose
  • have it installed ready for use for a taxable purpose.

Example: Claiming a deduction for an asset under the instant asset write-off threshold

    During the 2012-13 income year, Kylie's Flowers buys a new refrigeration unit for $3,000. As the refrigeration unit is a depreciating asset and costs less than $6,500, the business can claim an immediate $3,000 deduction for the 2012-13 income year.

Can you claim an accelerated deduction for motor vehicles?

From the 2012-13 income year, you can choose to use the capital allowance provisions in Subdivision 328-D to calculate the deduction for a motor vehicle costing $6,500 or more that you start to use, or have installed ready for use, for a taxable purpose.

The cost of the motor vehicle is added to the general pool but unlike other assets, the deduction is $5,000 plus 15% of the remaining amount.

Example: Initial deduction for a motor vehicle in the start year

    Flynn's Courier Service is a small business entity. In the 2012-13 income year, it purchases a small second-hand vehicle for $14,000 to help with deliveries. The vehicle is only used for business purposes.

    Flynn's Courier Service calculates its start year deduction in the following way:

      $5,000 + 15%

      ×

      ((100% × $14,000) − $5,000)

      =

      $6,350

    In the 2012-13 income year, Flynn's Courier Service can claim a deduction of $6,350 for the motor vehicle.

If the motor vehicle costs less than $6,500, it can be depreciated immediately under subsection 328-180(1), that is, the motor vehicle can be written off under the instant asset write-off rules.

Example: Initial deduction for a motor vehicle in the start year where the taxable purpose proportion results in a deduction of less than $5,000

    Digby's Builders is a small business entity and in 2013-14 it purchases a second hand utility for $8,000. The cost of the utility means Digby's Builders allocates it to the general small business pool. Digby also enjoys many outdoor adventure leisure activities and often uses the utility to carry equipment, and travel to and from these private activities. He estimates that 40% of his use of the motor vehicle is for private purposes and 60% for taxable purposes.

    Digby's Builders calculates its start year deduction in the following way:

    60% × $8,000 = $4,800

    In the 2013-14 income year, Digby's Builders can claim a deduction of $4,800 for the utility (which is equal to the amount initially allocated to the general small business pool).

Example: A motor vehicle that is written off under the instant asset write-off

    Barry's Gardening Services is a small business entity. In the 2012-13 income year, it purchases a second-hand ute for $6,000 to transport gardening tools. The vehicle is only used for business purposes.

    Barry's Gardening Services claims a deduction for the full value of the ute ($6,000) in the start year under subsection 328-180(1) as the ute cost less than $6,500.

What are the simplified depreciation pooling arrangements?

From the 2012-13 income year, 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.

You need to add together the closing balance of your long life pool and general small business pool for the 2011-12 income year to calculate the opening balance of your general small business pool for the 2012-13 income year.

Example: Consolidation of the depreciation pools for 2012-13 income year

    Chantal's Cafe is a small business entity. At the end of the 2011-12 income year, the closing balance of its long life pool was $8,000 and the closing balance of its general small business pool was $10,000.

    For the 2012-13 income year, Chantal's Cafe's long life pool no longer exists, but its general small business pool opening balance is now $18,000 (that is, $8,000 + $10,000).

    From the 2012-13 income year, the deduction for an asset acquired during an income year and allocated to the general small business pool is 15% of the taxable purpose proportion of its adjustable value. The general small business pool is written off at a rate of 30% per income year thereafter.

Example: Depreciation of assets acquired during the income year and allocated to the general small business pool

    The opening balance of Chantal's Cafe's general small business pool for the 2012-13 income year is $18,000. During the year it purchased a new large oven for $7,500.

    The business can deduct 15% of the cost of the oven ($1,125) in the 2012-13 income year.

    To calculate the deduction for the general small business pool for the 2012-13 income year, Chantal uses a rate of 30% ($18,000 × 30% = $5,400). Chantal's Cafe's total deduction for the 2012-13 income year is $6,525 (that is, $1,125 + $5,400).

    The change means that long-life pool assets purchased in the 2012-13 income year and later years will be added to their general small business pool and depreciated at 15% in the first year and 30% in subsequent years.

    Assuming Chantal's Cafe makes no other purchases, the closing balance of their pool for 2012-13 will be $18,975 (that is, the remaining $6,375 value of the oven, plus the remaining $12,600 in the pool).

More information

For more information about small business entity concessions, visit Small business entity concessions - home.

Last Modified: Wednesday, 5 September 2012


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