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Simplified depreciation for small business

Published:2016-12-09

Depreciation is very common for most tradition companies. And with regards to small business entities, they can choose to deduct amounts for most of their depreciating assets under a special depreciation regime referred to herein as “small business depreciation”).


Under the simplified regime, small business entities have access to an immediate write-off for low-cost depreciating assets and a simple pooling facility for other depreciating assets. Simplified methods are also provided for balancing adjustments relating to the disposal of assets and for dealing with assets that are only partly used for business purposes.


An immediate deduction is available for a low-cost asset in the income year in which it was first used, or installed ready for use, for a taxable purpose. An asset is entitled to the immediate deduction as follows:


  • an asset costing less than $20,000 — where the asset was acquired on or after 7.30 pm on 12 May 2015 and first used or installed ready for use between 7.30 pm on 12 May 2015 and 30 June 2017

  • an asset costing less than $1,000 — in any other case


Note that where the depreciating asset was acquired prior to 12 May 2015 but first used after this time the $1,000 threshold applies.


The deduction is limited to the taxable purpose proportion of the asset’s cost. For example, if an asset that is newly acquired for $800 is to be used 60% for business purposes, the deduction will be $480. However, if it is to be used only for business purposes, the deduction will be $800. Unpooled low-cost assets that were held before the taxpayer chose to apply small business depreciation do not qualify for the immediate deduction, but may be pooled.


Where a taxpayer claimed an immediate deduction for a low-cost asset in an income year and in a subsequent income year while still a small business entity first incurs a second element cost on the asset, the taxpayer can claim an immediate deduction for the second element cost where the following applies:


  • the cost was less than $20,000 — where the cost was incurred during the period starting 7.30 pm on 12 May 2015 and ending 30 June 2017

  • the cost was less than $1,000 — where the cost was incurred at any other time.


Where the second element cost equals or exceeds the relevant threshold for immediate deduction, or the taxpayer was previously entitled to a deduction for a second element cost on the asset, the cost is included in the pool. For these purposes, the second element of the cost is treated as the asset’s adjustable value. The asset is included in the pool even if the cost addition occurs during an income year in which the taxpayer is not a small business entity or does choose to apply simplified depreciation.


Example

Gerard uses all his assets 100% for business purposes. The closing value of Gerard’s small business pool for 2015/16 was $66,650. Therefore, the opening balance of his general small business pool for 2016/17 is $66,650.


During 2016/17 the following occurred:

  • acquired a single depreciating asset used 100% for business purposes — $25,000

  • cost addition amounts for assets in the pool — $21,000

  • proceeds from disposal of pooled assets (used 100% for business) — $5,500.


The closing value of the small business pool for 2016/17 is calculated as follows:

Opening balance

$66,650


Plus: additions

$25,000


Plus: cost addition amounts

$21,000


Less: depreciation at 30% on opening   balance

$19,995


Less: depreciation at 15% on additions

$6,900


Less: disposal proceeds (termination   values)

$5,500

Closing balance of small business   pool for 2016/17

$80,255

 

There are also other problems with regards to small business depreciation, such as deduction for pooled assets and disposal. If you have any enquiry, please feel free to contact at Wis Partners Group.


(Information source: Wolters Kluwer)