The Budget announced that small businesses (aggregate annual turnover less than $2m) would be able to immediately write-off assets they start to use or install ready for use, provided the asset costs less than $20,000 – the existing write-off threshold is $1,000.
Eligible assets could include things like cars, vans, kitchens, machinery, etc.
It should also be remembered that the threshold applies on a per asset basis, so several assets each costing up to $20,000 would qualify for the write-off if installed ready for use before 30 June 2017.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed in the small business general pool and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
These changes are expected to improve cash flow for small businesses and provide a boost to small business activity and investment.
Small businesses can access accelerated depreciation for the majority of capital asset types. Only a small number of assets are not eligible (such as horticultural plants and in-house software). In most cases, specific depreciation rules apply to these assets.
From 1 July 2017, the thresholds for the immediate depreciation of assets and the value of the pool will revert back to existing arrangements.
A bakery is run as a company. The business purchases a new oven for $13,750 and a new proofing cabinet for $3,500. Under current law, because these assets each exceed the current $1,000 threshold, they would be included in the small business general pool. Of their combined $17,250 cost, only 15%, or $2,588, would be depreciated in the first year. With a company tax rate of 30%, this means that the company would only get $776 back on its tax in the first year.
Under the new $20,000 threshold, the company will be able to claim an immediate deduction for both the new oven and the new proofing cabinet, giving an immediate deduction of $17,250. With the new small business company tax rate of 28.5% from 1 July 2015, the company will get $4,916 back on its tax. So, under the new $20,000 threshold for accelerated depreciation, the company would receive an additional cash flow benefit of $4,140.
Date of effect
This will apply for assets acquired and installed ready for use between 7:30pm (AEST) 12 May 2015 and 30 June 2017.