The Government has proposed to expand accelerated depreciation by allowing small businesses with an aggregated annual turnover of less than $2m to immediately deduct each asset that cost less than $20,000. The measure will apply to assets acquired from 7.30 p.m, 12th May, 2015 until30th June,2017.
The Instant Asset Write-Off up to $20,000 will replace the previous instant asset write-off threshold of $1,000.
The balance of a small business pool can also be immediately deducted if the balance is less than $20,000 at the end of an income year that ends on or after 12 May 2015 and on or before 30 June 2017 (including existing pools).
The Government will also suspend the current 'lock out' laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they have opted out) until 30 June 2017.
This proposed measure commences 7.30pm (AEST) 12 May 2015 and will cease on 30 June 2017.
Assets excluded from these depreciation rules include horticultural plants and in-house software allocated to a software development pool. In most cases specific depreciation rules apply to these excluded assets.
Assets that cost $20,000 or more (which can't be immediately deducted under other provisions) can be deducted over time using a small business pool. Under the pooling mechanism a deduction for 15 per cent of the cost is allowed in the first income year with a 30 per cent deduction allowed for each income year thereafter.
The Government has also proposed changes to allow primary producers to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills. A recent announcement now means this proposal will apply from 7.30pm, 12 May 2015.
Legislation and supporting material
Tax Laws Amendment (Small Business Measures No. 2) Bill 2015 and explanatory memorandumExternal Link was introduced into Parliament on 28 May 2015.
This web page will be regularly updated to reflect progress.
Find out more
- Media releaseExternal Link issued on 12 May 2015 by the Treasurer.
- Budget 2015-16 Budget paper No. 2 - Revenue Measures page 19External Link
- Small business websiteExternal Link
- Jobs and Small Business packageExternal Link
- Budget highlights - Jobs and Small Business - including accelerated depreciation examplesExternal Link
- Accelerated depreciation for primary producers
End of find out more
Information alert – Immediate deductibility for assets less than $20,000
The Australian Government announced a new measure in the 2015 Budget for small businesses with immediate deductibility for assets costing less than $20,000.
The measure will require legislation and will apply to assets acquired from 7.30pm on 12 May 2015 until 30 June 2017. You will get to claim the deduction in the year in which the asset is first used or installed ready for use.
When a proposed law change is announced but not yet enacted, the ATO provides advice to taxpayers about following the existing law and also information about the proposed changes.
As this law change will be retrospective if enacted, it is important that small businesses understand their obligations under both the existing and proposed laws.
Importantly, under the announced new measure, small businesses will need to keep records of their purchases in order to verify their deduction.
More information about the ATO’s administration of retrospective legislation can be found at administrative treatment of retrospective legislation.
While legislative provisions will detail how this will work, the question and answer section below provides some guidance as to how the measure might apply based on the details announced in the Federal Budget 2015–16.
Is the measure law yet?
No. The law to give effect to the changes has not been enacted. This page will be updated as the measure progresses through the parliamentary process.
Who is eligible?
Any business that meets the definition of small business entity, that is one with an aggregated turnover less than $2 million, may be eligible to immediately deduct the cost of assets acquired for less than $20,000.
Sole traders and partnerships may be impacted by non-commercial loss rules. These will only apply if all the deductions from the business activity for the year exceed the income from that activity. See the non-commercial loss rules for more information.
What is the current law?
Small businesses can elect to use the ‘simplified depreciation rules’. These rules allow small businesses to immediately deduct the cost of assets acquired for less than $1,000. Assets that cost over $1,000 can be added to a small business pool with a percentage of the pool balance at year end being deducted. 15 per cent of the cost of assets added to the pool during an income year is deductible in that year, with 30 per cent of the cost being deductible for each year thereafter.
You claim the deduction in the year in which the asset is first used or installed ready for use. Businesses also need to ensure that they only claim a deduction to the extent to which the asset is used in an income earning activity.
What is changing?
The threshold for immediate deductibility will be increased to $20,000 from 7.30pm 12 May 2015. The increased threshold is proposed to apply until 30 June 2017. The threshold for the low pool value rules will also be increased to $20,000.
You will continue to claim the deduction in the year in which the asset is first used or installed ready for use.
What does this mean?
This means that a small business will be able to immediately deduct the cost of each and every depreciating asset that they purchase for less than $20,000.
For example, Pamela bought a second hand skid steer loader for $17,000 on 28 May 2015 which is used solely in her landscaping business. As the asset cost less than $20,000, Pamela will be able to claim an immediate deduction for this asset.
For assets costing more than $20,000, small businesses can elect to use the pooling arrangements and depreciate the cost of such assets at 15 per cent in the first year and 30 per cent each year thereafter.
For example, Owen bought a new hydraulic press for $40,000 on 28 May 2015 which is used solely in his manufacturing business. As the asset cost more than $20,000, Owen cannot claim the $20,000 immediate deduction for this asset. Owen will add the asset to his small business pool.
The low pool value threshold will also increase to $20,000. This means that an immediate deduction is available if the pool balance is less than $20,000 at the end of an income year that ends on or after 12 May 2015 and on or before 30 June 2017.
These changes are intended to apply to assets acquired between 7.30pm, 12 May 2015 to 30 June 2017.
How will the change be monitored?
The rules around asset eligibility do not change. That is, if an asset was eligible for immediate deductibility under the current $1,000 threshold it will continue to be deductible under the new $20,000 threshold.
To ensure the proposal operates as intended, the ATO will engage with small businesses based on their behaviour and choices. This will include providing clear guidance so that businesses intending to utilise the provisions find it as easy as possible to do so.
If small businesses exhibit behaviours that indicate a high level of risk, they can expect a higher level of interaction with the ATO. The ATO has a risk-based program to identify taxpayers that are not meeting their obligations and will take measured approaches to influence taxpayer behaviour.
Are all assets eligible?
All assets (including new and second hand) will be eligible, except for a small number of exclusions which receive different depreciation treatment.
Excluded assets include:
- Horticultural plants - subject to their own ‘uniform capital allowance’ rules (UCA);
- Capital works - subject to their own ‘capital works’ depreciation rules;
- Assets allocated to a low-value pool or software development pool - subject to the deduction rates applicable under those rules;
- Primary production assets for which the entity has chosen to use the normal depreciation rules rather than the simplified depreciation rules; and
- Assets leased out to another party on a depreciating asset lease.
Businesses need to ensure that they only claim a deduction in the year in which the asset is first used or installed ready for use and to the extent to which the asset is used in an income earning activity.
Are old/second hand assets eligible?
Yes, both new and old/second hand assets remain eligible.
GST inclusive or exclusive?
If the entity is registered for GST, then the GST exclusive amount is taken to be the cost of the asset.
Where the entity is not registered for GST, then the GST inclusive amount is taken to be the cost of the asset.
What does this mean for businesses that have opted-out of the simplified depreciation rules?
To ensure fairness and maximum eligibility for the increased thresholds, as a once off, small business entities that have previously elected out of the simplified depreciation rules will no longer be subject to the ‘lock-out’ rule. These entities will be able to re-elect to use the rules with the higher threshold if they choose to do so.
Retail fuel sales
For the purposes of calculating the aggregate turnover of an entity, disregard any income derived from the sale of retail fuel. This recognises that entities involved in the sale of retail fuel will often have high levels of turnover with a very low margin, so that the ordinary turnover figure would not be a true indicator of the size of the entity.
To find out more, refer to Retail Fuel Sales.
An eligible small business can claim an immediate a deduction for any software purchased off the shelf, costing less than $20,000 that is used exclusively in the business.
An eligible small business can also claim an immediate deduction for the cost of developing software for use exclusively in its business where the cost is less than $20,000. An exception applies if the entity has previously chosen to claim deductions for in-house software under the software development pool rules. In these cases the costs need to continue to be allocated to that pool.
How can I find out more about the current rules and eligible assets?
For information about the operation of the current rules and assets that are eligible to be deducted under the current instant asset write-off threshold you can ring 13 28 66.
Can I choose between the new accelerated depreciation for primary producers and these instant asset write-off changes
Yes. You will be able to choose whichever rules benefit you the most. This can be done on an asset by asset basis.