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  • Small business entities using simplified depreciation rules

    If you're a small business entity that chooses to use the simplified depreciation rules, temporary full expensing rules apply with some modifications.

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    Eligible assets

    You immediately deduct the business portion of the asset's cost for assets you start to hold, and first use (or have installed ready for use) for a taxable purpose from 7.30pm (AEDT) on 6 October 2020 to 30 June 2022.

    No threshold applies to the cost of the asset.

    You can't deduct the business portion of an asset's cost if the asset is excluded from the simplified depreciation rules. The general temporary full expensing rules may apply to these assets.

    Working out your deduction

    You can't opt out of temporary full expensing for assets that the simplified depreciation rules apply to. You must immediately deduct the business portion of the asset's cost for assets you start to hold, and first use (or have installed ready for use) for a taxable purpose from 7.30pm (AEDT) on 6 October 2020 to 30 June 2022. You don't add these assets to your small business pool.

    You also deduct the balance of the small business pool at the end of an income year ending between 6 October 2020 and 30 June 2022.

    The pool's closing balance for the income year is zero after full expensing.

    Example: temporary full expensing for small business entity using simplified depreciation rules

    X Co Pty Ltd has an aggregated turnover of $350,000 in its 2020–21 income year ending 30 June 2021. It has chosen to use the simplified depreciation rules.

    On 30 November 2020, X Co Pty Ltd acquired a new delivery van for $35,000 and immediately used it for business purposes.

    The balance of X Co Pty Ltd’s small business pool as at 30 June 2021 is $200,000.

    Because X Co Pty Ltd chose to use the simplified depreciation rules for the 2021 income year and acquired and used the van for a business purpose after 6 October 2020, it cannot opt out of temporary full expensing for the van. It does not add the van to its small business pool and must deduct the balance of its small business pool at the end of its 2020–21 income year, which ends between 6 October 2020 and 30 June 2022.

    In its 2020–21 tax return, X Co Pty Ltd must claim:

    • an immediate deduction of $35,000 for the new delivery van
    • a $200,000 deduction for the balance of its small business pool.
    End of example

     

    Example: temporary full expensing for small business entity ceasing to use simplified depreciation rules

    Cleaning Services Pty Ltd used simplified depreciation rules in its 2019–20 income year ending 30 June 2020. Due to a growth in business in the 2020–21 income year, it is no longer a small business entity and cannot use the simplified depreciation rules for that year.

    The balance of Cleaning Services Pty Ltd's small business pool as at 30 June 2021 is $170,000.

    Under temporary full expensing, it must deduct the balance of its small business pool at the end of its 2020–21 income year, which ends between 6 October 2020 and 30 June 2022.

    For its 2020–21 income year, Cleaning Services Pty Ltd must claim a $170,000 deduction for the balance of its small business pool.

    End of example

     

    Example: small business entity ceasing to use simplified depreciation rules

    Lilian has chosen to use the simplified depreciation rules for several years and maintains a small business pool. At 30 June 2020, the balance of the pool was $180,000.

    On 29 November 2020, Lilian purchased machinery for her business for $200,000 and does not wish to claim temporary full expensing for the cost of the asset in the 2020–21 income year. Lilian decides not to choose simplified depreciation for the 2020–21 income year and makes the choice to opt out of temporary full expensing for the machinery when lodging her tax return for the 2020–21 income year.

    Lilian also chooses not to apply backing business investment in respect of the machinery and makes this opt-out choice in the 2020–21 tax return. Instant asset write-off will not apply to Lilian as she is not applying the simplified depreciation rules. Lilian will use the general depreciation rules to determine the decline in value of the machinery for the 2020–21 income year.

    As Lilian has previously used the simplified depreciation rules and maintains a small business pool, she will deduct the balance of the pool ($180,000) at the end of the 2020–21 income year.

    End of example

    Improvements

    You can deduct the business portion of the costs of improvements made to an asset from 7.30pm (AEDT) on 6 October 2020 to 30 June 2022.

    Lock out rules suspended

    The 'lock out' rules are suspended until 30 June 2022. These rules prevented small business entities from accessing the simplified depreciation regime for five years if they opt out of the regime. The suspension of these rules allows small business entities to take advantage of temporary full expensing.

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    Last modified: 15 Jul 2021QC 66407