All small businesses will get an immediate tax deduction for any individual assets they buy costing less than $20,000. (Currently, the threshold sits at $1,000).
This $20,000 limit applies to each individual item. Small businesses can apply this $20,000 rule to as many individual items as they wish.
These arrangements start Budget night and continue until the end of June 2017.
Increasing the depreciation threshold will mean improved cash flow for small businesses. It will encourage them to bring forward investment in the assets they need to grow their business and service their customers.
The new threshold will also mean small businesses spend less time tracking assets across years for tax purposes. This cuts more red tape and allows business owners to focus on running and growing their business.
Any assets over $20,000 can be added together ('pooled') and depreciated at the same rate. These assets are depreciated at 15 per cent in the first income year, and 30 per cent per year thereafter.
If the value of the pool is below $20,000 it can be immediately deducted until the end of June 2017.
The Government has consulted widely and listened to the concerns of small business. Time and time again the issue of accelerated depreciation arose as a barrier to investment. This measure addresses the concerns of the small business community.
This temporary jump in the threshold will support small businesses to invest in new assets which will help them grow and prosper into the future.
Small businesses will get an immediate tax write off for all assets costing less than $20,000
How this will help Australian small businesses
Small business with annual turnover of less than $2 million
Sam owns and operates a small bakery, which he runs as a company in a country town in north Queensland. Sam purchases a new rack oven for $13,750 and a new proofing cabinet for $3,500 to replace his old, worn-out equipment.
Because these assets each exceed the current $1,000 threshold, they would be included in the accelerated depreciation 'pool'. Of their combined $17,250 cost, only 15 per cent, or $2,588, would be depreciated in the first year. With a company tax rate of 30 per cent, this means that Sam's company would only get $776 back on its tax in the first year.
Under the new $20,000 threshold, Sam's company will be able to claim an immediate deduction for both the new rack oven and the new proofing cabinet, giving an immediate deduction of $17,250. With the new small business company tax rate of 28.5 per cent from 1 July 2015, Sam's company will get $4,916 back on its tax.
Under the new $20,000 threshold for accelerated depreciation, Sam's company will receive an additional cash flow benefit of $4,140.
|Current law||New law||Additional Benefit|
|Cash flow benefit*||+$776||+$4,916||+$4,140|
*cash flow benefit equals depreciation times the tax rate. Sam also benefits from the reduction in the tax rate for small companies, from 30 per cent under the current law to 28.5 per cent under the new law.
PLUS other taxation benefits
As a small business, Sam may also be eligible for a range of other taxation benefits including:
- small business concessions on capital gains tax
- simplified accounting and reporting arrangements
- immediate deduction for certain pre-paid business expenses
- option to account for GST on a cash basis
- option to elect for annual apportionment of some GST input credits
- option to pay GST by quarterly instalments
- PAYG instalments based on GDP-adjusted notional tax