If you are a small business entity (SBE) then you may be entitled to the accelerated depreciation provisions for the current financial year.
Changes that came into effect on July 1, 2012 mean that SBEs can write off assets at a much faster rate than was previously available.
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Assuming you qualify, then when you purchase a depreciable asset in the current financial year and where the asset value is less than $6,500 you can write it off immediately.
Assuming you are registered for GST, the $6,500 limit is the GST exclusive value. If you are not registered for GST then the cap is the GST inclusive amount.
For assets with a value in excess of $6,500 they go into a general pool and are depreciated at a rate of 30% per annum.
The $6,500 write-off applies to each asset purchased. It is not a one-off deduction in the financial year.
For example, if you purchased five new computers which had a value of $4,400 each, GST inclusive, you receive a single invoice covering the purchase showing the five computers for a total cost of $22,000.
Assuming you are registered for GST, you would deduct the GST component, in this case $2,000. This would be claimed in your Business Activity Statement as an input tax credit.
The GST exclusive amount of $20,000 could be deducted in full in your current year income tax return. This is because each computer has a GST exclusive amount of less than $6,500. So 100% tax deduction.
Where you purchase a motor vehicle there is an immediate write-off of $5,000, with the net value of the vehicle after the first $5,000 deduction going into the general pool to be depreciated.
This additional $5,000 deduction applies to all motor vehicles, new and second-hand.
You are an SBE if your annual turnover is less than $2 million per annum. There are three different tests to calculate your turnover to qualify for the SBE concessions.
If you are near the $2 million turnover threshold then you need to check with your accountant as to whether you qualify for the concessions.
There are also grouping rules that can capture and aggregate the turnover of related entities. If you are caught under the grouping provisions then you need to look at the aggregated turnover of the group to see if you qualify.
These accelerated depreciation provisions can make the purchase of new plant, equipment and vehicles much more tax effective.
Don’t go shopping just because of the tax deduction, however. If you need to replace or buy new assets for your business then the tax concessions can be quite attractive.
In the run up to the end of the financial year this should be included in your tax planning.
Greg Hayes is a director of Hayes Knight, specialising in taxation and business planning advice.