In the budget on 12 May 2015, the treasurer announced that small business will be able to immediately claim a tax deduction for assets costing less than $20,000 as opposed to currently being able to write off assets costing less than $1,000.  What does this actually mean for you?

 

Is this law yet?

No! It is just an announcement. It still has to be passed through Parliament and some of last year’s budget announcements have still not been passed.  That being said this measure is not linked to any other announcements and there hasn’t been any opposition from the other parties so it is very likely be passed.

Who is eligible?

Any business that meets the definition of small business entity, that is one with an aggregated turnover less than $2 million, may be eligible to immediately deduct the cost of assets acquired for less than $20,000.

Are all assets eligible?

All assets (including new and second hand) will be eligible, except for a small number of exclusions which receive different depreciation treatment.

Excluded assets include:

  • Horticultural plants - subject to their own ‘uniform capital allowance’ rules (UCA);
  • Capital works (Buildings) - subject to their own ‘capital works’ depreciation rules;
  • Assets allocated to a low-value pool or software development pool - subject to the deduction rates applicable under those rules;
  • Primary production assets for which the entity has chosen to use the normal depreciation rules rather than the simplified depreciation rules; and
  • Assets leased out to another party on a depreciating asset lease.

What is included?

  • Everything else including cars, van and utes

Businesses need to ensure that they only claim a deduction to the extent to which the asset is used in an income earning activity.

What if I buy 2 assets for $15,000 therefore costing $30,000? Provided that they are separate assets then you can claim them individually and write both off.

GST inclusive or exclusive?

If the entity is registered for GST then the GST exclusive amount is taken to be the cost of the asset.

Where the entity is not registered for GST then the GST inclusive amount is taken to be the cost of the asset.

So what does this mean for me?

Remember this is only a tax deduction so you need to consider your current taxation rate and the impact the deduction will have for example.

Companies

The company taxation rate is 30%, therefore if you purchase an asset totalling $10,000 you will receive a reduction in your company tax of $3,000.

Individuals

Individual taxation rates for the 2014-15 year are:

Taxable Income Taxation Rate
0 – $18,200 Nil
$18,201 – $37,000 19%
$37,001 – $80,000 32.5%
$80,001 – $180,000 37%
$180,001 and over 45%

 

Hence if your taxable income is $50,000 and you purchase assets totalling $10,000 you will receive a reduction in your tax of $3,250.

If your taxable income is $40,000 and you purchase assets totalling $10,000 you will actually receive a lot of the deduction at the 19% rate and receive a reduction in your tax of ($7,000 x 19% + $3,000 x 32.5%) = $2,305.

If you have any questions please do not hesitate to ask.

Useful check for claiming your entitled deductions

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