There is accelerated depreciation write-off for any asset that is up to $20,000, which might have been acquired by any small business. Before this new rule, the threshold for write off was just $1,000, with concession applying only to any business having an aggregate of less than $2 million in annual turnover. This may look like a very generous tax concession, but the small business needs to satisfy several conditions before it can benefit from this.
First and foremost, the asset concerned is expected to be used to generate income. The ATO may send you a letter asking you to explain the asset once you lodge your tax return due to their insistence on monitoring how the items are used in a bid to detect ‘rorts.’
Only items that the small business first acquired after or on 7:30 pm (AEST) on the 12th May 2015 and such items must have been installed or used first on or before 30th June 2017. The threshold has gone back to the initial $1,000 from the 1st July 2017. All small businesses could benefit from the increased threshold; this does not exclude those small businesses that opted out previously from the simplified depreciation rules. Any depreciating asset that fails to meet the timing requirement described above will have to be subjected to the original $1,000 threshold.
The important features of the Write-off rules
- The asset concerned can either be second-hand or new
- The tax deduction can be claimed in the particular income year in which the item is installed or first used.
- The write-off is for taxable proportion of the particular asset, which is related to the asset’s purpose for generating accessible income in any income year.
- There is no feature for the requirement that a particular asset is acquired first at any time in the future against current regulations, limiting access to the rise in the threshold to the business’ new assets. The asset must be newly acquired by the small business even if it is acquired as new or second-hand. This rule ensures that any asset that had been earlier acquired, deposed of, then reacquired by the small business is ruled out of the concession.
- Any depreciating asset that is acquired before the 7:30 pm stated time would remain subject to the previous $1,000 threshold when they were first installed or first used, notwithstanding. Any depreciating asset first acquired as from 7:30 pm start time will also remain under the $1,000 threshold, provided the asset was not first installed or first used on or before 30th June 2017.
- It is possible for a small business to claim an instant deduction for any amount that is part of the second element of the depreciating asset’s cost. Provided the asset was first installed or first used in any previous year. The total revenue on the said asset must not be up to $20,000, and it is essential that the cost is incurred on or after 7:30 pm (AEST) and on the 12th of May, 2015 and on or before the 30th June 2017. If any cost is incurred beyond or before this period, it will be subjected to the $1,000 threshold.
- A primary producer is also entitled to accelerated depreciation on these items from the 12th of May, 2015.
- Immediate deduction for the cost of fencing and water facilities, like windmills, water towers, irrigation channel pumps, bores, tanks, and dams.
- The cost of Fodder Storage assets like tanks and silos that are used in storing grains and animal feeds can get depreciated over a period of three years.
Any asset acquired under contrived or artificial arrangements is not covered under the $20,000 accelerated depreciation concession, according to as warning from the government. The government further stated that the general anti-avoidance provision in the tax law focuses on capturing any arrangement in which similar small businesses will sell assets to one another to be found worthy of the ‘first acquired’ condition and also write off the entire value of the particular asset to fall under the increasing threshold.
The $20,000 accelerated depreciation incentive may sound very attractive to a small business owner, but it may not be prudent to spend up to $20,000 on any asset just because you want to qualify for tax deduction.