Small Business Simplified Depreciation Rules
Small business taxpayers will benefit from more generous depreciation rules which will ultimately improve cashflow by allowing bigger deductions in earlier years.
Depreciation has been made simpler for small business in the 2012-13 income year. There are three primary changes and they may impact your timing of asset purchases:
- Increased instant asset write-off threshold;
- Streamlined pooling provisions; and
- Special rules for cars.
A greater depreciation deduction may reduce your taxable income in a high profit year.
Instant asset write-off threshold increased
You can now claim an outright deduction (write-off) for most depreciating assets purchased that cost less than $6,500 each. This has increased from $1,000.
For example, if you buy a new laptop for $2,000 and a high resolution printer for $4,500. Both the laptop and printer are depreciating assets used entirely for the business.
As each asset cost less than $6,500, you can claim a deduction of $2,000 for the laptop and $4,500 for the printer in the 2012-13 income year.
Accelerated deduction for motor vehicles
From 2012-13, if you buy a motor vehicle to use in your business, you can claim an immediate $5,000 deduction.
You can deduct the remainder of the cost through the general small business pool at 15% for the first year and 30% for later years.
What are the eligibility requirements?
- The immediate deduction can be claimed on motor vehicles purchased from 1 July 2012.
- Your business must be a small business entity. Generally, a small business entity is one with an aggregated annual turnover of less than $2.0m.
- The motor vehicle can be new or used road vehicles (e.g. cars, trucks, utilities, motorcycles).
- “Motor vehicles” does not include road vehicles where its main function is not related to public road use or if the vehicle’s ability to travel on public roads is secondary to its main function (e.g. tractors, trailers, road graders).
Simplifying the depreciation rules for small business, from 1 July 2012 the small business long life pool will cease to exist. From this date, all assets costing $6 500 or more other than buildings will be depreciated in a general small business pool at 30% (with the rate of 15% applying in the first year).
The abolition of the long-life pool again will provide a significant cashflow benefit to small businesses. The changes are summarised in the following table:
The closing balance of your long life pool and general small business pool at 30 June 2012 will be added together in order to calculate the opening balance of the general small business pool for the beginning of the 2012/2013 income year.