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Instant Write-Off for Small Business – Some Technical Aspects

Posted on December 16, 2015

Our clients continue to ask us about the operation of the new tax law applicable to small businesses in relation to immediate tax deduction of assets under $20,000.

We have provided below some practical examples that will help you understand the rules.

Question 1

If I bought a motor vehicle for $22,000 GST inclusive on 30 November 2015 and my business is GST registered, would this asset qualify for the immediate deduction?

Answer

No, this asset would not qualify for the immediate deduction. Why? If the company is a small business entity and GST registered, the motor vehicle cost for depreciation purpose is $20,000. The instant asset write-off threshold is less than $20,000. Assets that cost $20,000 or more are deducted over time using the general small business pool. Depreciation rate is 15% for the first year and 30% for the following years.

Tips

If you could negotiate to reduce the purchase price just by $2 to $21,998 GST inclusive, you would be able to claim the deduction of the entire cost immediately as the asset cost will be $19,998, provided that you are a small business entity (see explanation below)

Eligible small business…
is any individual, partnership, company or trust that does both of the following:

  • Operates a business for all or part of the income year
  • has less than $2 million aggregated turnover

Question 2

If my business is not GST registered, would the instant asset write-off threshold apply to the GST exclusive amount or the GST inclusive amount?

Answer

GST inclusive amount.

Tips

If an asset was purchased for $18,000 incl GST between 12 May 15 to 30 June 17, the immediate deduction would be $18,000.

If an asset was purchased for $30,000 incl GST between 12 May 15 to 30 June 17, immediate deduction is not available and the asset will be added to the general small business pool for depreciation purpose.

Question 3

XYZ Trust is a small business entity and has a small business general pool balance of $16,000 at the start of the financial year (e.g 01/07/2014). Is there any special asset write off in this case?

Answer

Yes and No. The same threshold (below $20,000) applies to small business general pool.

Yes – If during the financial year the total assets added to the general pool were less than $4,000, the entire pool balance can be deducted in the same financial year. The increased threshold of $20,000 will apply for the 2015, 2016 and 2017 tax years.

No – If during the financial year, the total assets added to the general pool were $4,000 or more, the entire pool balance will be limited to the relevant depreciation percentage for new (15%) or older (30%) assets within that pool for the tax year.

Question 4

Does the instant asset write off threshold of $20,000 apply to one asset or a group of asset?

Answer

One asset

Do you have any questions? Please contact us to find out more.

 

Written by Fiona Leung

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Insights
Hall Consulting Group