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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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.
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:
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((100% × $14,000) − $5,000)
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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.
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).
For more information about small business entity concessions, visit Small business entity concessions - home.
Last Modified: Wednesday, 5 September 2012
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