A small business entity is classified as a business with an aggregated annual turnover (the total normal income of the business and of any associated businesses) of less than $10m. A small business entity can enjoy many income tax concessions, one of which being a simplified depreciation regime.
Under simplified depreciation rules, assets costing less than the "instant asset write-off" threshold are written off in the year they are bought and used, or installed ready-for-use.
In the 2018/19 Federal Budget, the current "instant asset write-off" threshold of $20,000 was extended. Previously due to expire on 30 June 2018, the $20,000 immediate write-off is available for another 12 months to 30 June 2019.
The instant asset write-off applies where:
• the entire cost, excluding GST, of the asset is less than the threshold
• trade-in amounts are ignored
• the asset may be new or second-hand.
Also, for the instant asset write-off to apply for small business, the amount written off must be in the same proportion of the business use percentage. That is, an asset costing $18,000 which is used 50% of the time for business purposes can only be written off immediately for a total of $9,000.
Clients who were looking to utilise the immediate deduction are not pushed into a cashflow issue prior to 30 June 2018 by having the write-off extended. In particular, there is no need for a "mad rush" to get assets installed prior to 30 June this year.
Another year extension means that certain small businesses may be eligible from 1 July 2018 to write-off the entire amount in their small business depreciation pool.
The entire balance of the pool can be deducted in an income year when the balance before the calculation of depreciation is less than $20,000. The depreciation calculation comes in after adding new additions that would have cost more than $20,000 in the 2018/19 income year.
Also noted in the 2018/19 Federal Budget is that the current suspension of small business depreciation "lock-out" rules will also continue for another 12 months to 30 June 2019.
Generally, a taxpayer who stops using (or opts-out of) simplified depreciation even though they are eligible to do so must stay out of the regime for five years. These lock-out rules currently do not apply as the $20,000 instant asset write-off is in place.
Information sourced using CCH iknow