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  • Simpler depreciation for small business

    You can choose to use the simplified depreciation rules if you have a small business with an aggregated turnover (the total normal income of your business and that of any associated businesses) of less than:

    • $10 million from 1 July 2016 onwards
    • $2 million for previous income years.
    Under these rules, if you purchased assets from 7.30pm (AEST) on 12 May 2015 and first used or installed them ready for use:

    From 7.30pm (AEST) on 12 May 2015 until 28 January 2019

    From 29 January 2019 until before
    7.30pm (AEDT)
    2 April 2019

    From 7.30pm (AEDT) on
    2 April 2019 until 30 June 2020

    You can immediately deduct the business portion of most depreciating assets costing less than $20,000 each (the instant asset write-off threshold).

    You can immediately deduct the business portion of most depreciating assets costing less than $25,000 each (the instant asset write-off threshold).

    You can immediately deduct the business portion of most depreciating assets costing less than $30,000 each (the instant asset write-off threshold).

    The threshold reverts to $1,000 from 1 July 2020.

    If you're a business with a turnover from $10 million to less than $50 million you may be eligible for the instant asset write-off for assets purchased from 7.30pm (AEDT) on 2 April 2019. Visit the general depreciation rules for more information.

    Small businesses can also:

    • pool the business portion of most higher cost assets (those with a cost equal to or more than the relevant instant asset write-off threshold) and claim:  
      • a 15% deduction in the year you start to use them or have them installed ready for use
      • a 30% deduction each year after the first year
    • deduct the balance of the small business pool at the end of the income year if the balance at that time (before applying the depreciation deductions) is less than the instant asset write-off threshold.

    See also:

    If you choose to use the simplified depreciation rules, you must:

    • use them to work out deductions for all your depreciating assets except those specifically excluded
    • apply the entire set of rules, not just individual elements (such as the instant asset write-off)
    • only claim a deduction for the portion of the asset used for business or other taxable purposes and not for the portion for private use.

    If you choose to stop using the simplified depreciation rules or become ineligible to use them, you must use the general depreciation rules. However, any assets in your small business pool will continue to be depreciated in the pool, even if you stop using the simplified depreciation rules.

    On this page:

    Next step:

    • Attend our Depreciation webinar – which addresses commonly asked questions around claiming deductions and depreciating assets.

    See also:

    Cost

    The cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it ready for use.

    If you are registered for the goods and services tax (GST) and can claim the full GST credit, you exclude the GST amount you paid on the asset when you calculate your depreciation amounts (and your instant asset write-off threshold is exclusive of any GST).

    If you are not registered for GST, you include the GST amount you paid on the asset in your depreciation calculations (and your instant asset write-off threshold is inclusive of any GST).

    If you are only able to claim a portion of the GST credit then the cost is reduced by the portion you can claim.

    See also:

    Trade-ins

    When you trade-in a car or any other asset, typically the agreed price of your trade-in is deducted from the cost of your new asset. The sale and purchase of the two assets may appear as one transaction.

    There are two transactions, the purchase of a new asset and the disposal of an existing asset. If the purchase price of your asset (irrespective of the amount you were paid for your trade-in) is equal to or more than the relevant threshold, then it needs to be added to the small business pool and can't be immediately written-off.

    Business vs private use

    Your depreciation deduction is limited to the percentage your asset is used for business or other taxable purposes (for example, to manage your investments or rental properties). You cannot claim a deduction for the portion of the asset used for private purposes.

    In determining whether the instant asset write-off applies, you must take into account the full cost of the asset, but your deduction is limited to an estimate of how much you use the asset in earning assessable income.

    For example, if you buy a car for $19,000, and you estimate it is used 50% for business purposes and 50% for private purposes, it is immediately written-off, but your deduction is $9,500.

    Asset sales and disposals

    If an asset is part of the small business pool and you sell it (or it is lost or damaged and you receive a compensating insurance payout), the balance of the pool is reduced by the amount of the sale proceeds or insurance payout – to the extent the asset has been used and depreciated for taxable purposes.

    If an asset has previously been written-off (either under the instant asset write-off or as part of a low value pool), the proceeds from the asset's sale must be added to your assessable income – to the extent the asset has been used and depreciated for taxable purposes.

    See also:

    Exclusions

    A small number of assets are excluded from the simplified depreciation rules.

    See also:

    Example: Simplified depreciation – small business pool

    Loretta bought a trailer for her event management business on 1 December 2018 for $15,000 and a second larger trailer on 2 February 2019 for $28,000. She also sold an old trailer that was previously in her small business pool for $8,000. Loretta had an opening pool balance of $100,000 from the previous year.

    Loretta will:

    • immediately write-off the cost of the first $15,000 trailer (as it is under the $20,000 instant asset write-off threshold which applied at the time she purchased and started to use the trailer)
    • calculate her depreciation deduction for pool assets by:      
      • adding the cost of the $28,000 larger trailer to her small business pool (as it is over the $25,000 threshold which applied at the time she purchased and started to use the larger trailer).
      • deduct the $8,000 received from the sale of the old trailer from her small business pool.

    Calculation of small business pool balance

    Calculation of small business pool balance
    Calculation of small business pool balance

    Calculation item

    Pool balance

    Depreciation claim

    Closing pool balance from previous year  

    $100,000

    Opening pool balance for current year   

    $100,000

    Add: New asset purchase 

    $28,000

    Subtotal

    $128,000

    Less: Proceeds of asset sale or disposal 

    $8,000

    Subtotal

    $120,000

    Pool deduction claim (30% of $100,000) 

    $30,000

    $30,000

    Subtotal

    $90,000

    New asset deduction claim (15% of $28,000) 

    $4,200

    $4,200

    Total depreciation for current year

    $34,200

    Closing pool balance

    $85,800 

    Loretta's depreciation claim for the 2018–19 income year is:

    • deduction for instant asset write-off: $15,000
    • deduction for small business pool: $34,200.

    Loretta's closing pool balance for the year is $85,800.

    Figures exclude GST.

    End of example
    Last modified: 26 Sep 2019QC 33726