2012 Changes to the Small Business Depreciation Rules

Tax law changes for small business depreciation will benefit for 2.7 million small businesses. They’re due to take effect from July 1, 2012. In this article, we take a look at these changes and what they have in store for your business. If you require more information, qualified accountants in Sydney and elsewhere in Australia can assist with specific advice.

The Changes

The legislation is set to take effect from July 1, 2012, affecting the 2012 – 13 income year. The key changes to the small business depreciation rules include:

  • Instant write-off threshold. An increase of the small business instant write-off threshold from $1,000 to $6,500. Allowable items may include photocopies, laptops, fridges, and desks.
  • Other depreciating assets. Small businesses will be able to write-off all other depreciating assets in a single depreciating pool at a rate of 30 per cent.
  • Motor vehicle write-off. Small businesses will be able to claim and immediate write-off of $5,000 for motor vehicles acquired during the 2012 – 13 year.

Comparison with Current Provisions

Instant Write-Off Threshold

The instant write-off threshold is currently only $1,000. This means that currently only depreciating assets that cost less than $1,000 in the income year in which they start to be used or are installed and ready to be used, can be written off. As such, the increase of the threshold to $6,500 presents significant benefits for small businesses and cash flow.

Currently the law allows depreciating assets costing $1,000 or more to be allocated to the long life small business pool (which has a depreciating rate of 5 per cent) or the general small business pool (which has a depreciating rate of 30 per cent), according to the effective life of the asset.

Under the new changes, small businesses can allocate depreciating assets that cost $6,500 or more to the general small business pool. The asset can be depreciated at a rate of 15 per cent in the year in which it is first allocated to the pool. The asset can then be depreciated at a rate of 30 per cent regardless of its effective life.

Motor Vehicle Write-Off

Motor vehicles that can be written off include cars, trucks, scooters, motorcycles, utes, and vans, but not items such as tractors, harvesters, road rollers and graders, or trailers.

Currently:

  • Small businesses can write-off their depreciating assets, which covers motor vehicles, that cost less than $1,000 in the income year in which they start to use the motor vehicle.
  • Motor vehicles cost more than $1,000 can be depreciated through the general small business pool at a rate of 15 per cent in the year of allocation, then 30 per cent in the following years.

With the changes:

  • Small businesses can allocate a purchase vehicle to the small business pool then immediately write-off up to $5,000 for vehicles costing $6,500 or more, for the year they first start to use the vehicle.
  • Along with the instant $5,000 write-off businesses can depreciate the remaining value of the vehicle through the general small business pool at 15 per cent for the first year and 30 per cent for the following years.

These changes effectively simplify existing small business depreciating rules and may lead to an improvement in small business tax flow and streamline the compliance process. For specific advice on how the changes apply to your business, you will need to contact a small business accounting in Sydney or in your local area.