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  • Simplified depreciation rules

    Small businesses can use the simplified depreciation rules as an alternative to the uniform capital allowances (UCA) rules to work out deductions for most depreciating assets.

    Business means the individual, partnership, company or trust that carries on the business activity.

    Small business means a ‘small business entity’, which is an individual, partnership, trust or company with aggregated turnover of less than $2 million.

    Attention

    New laws have passed that allow small businesses with an aggregate turnover of less than $2 million to immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000. The general small business pool will apply to depreciating assets costing $20,000 or more. The measure will apply to assets acquired from 7.30pm (AEST) on 12 May 2015 until 30 June 2017.

    For more information, see Growing Jobs and Small Business - expanding accelerated depreciation for small businesses.

    End of attention

    Assets to which these rules apply

    • Some assets are excluded from the simplified depreciation rules. If you choose to use the simplified depreciation rules, you must use them to work out deductions for all your depreciating assets that the rules apply to.
    • If you have non-business income, such as salary and wages, you will also claim a deduction for depreciating assets you use in earning your employment income under these simplified depreciation rules.
    • Where you can claim a goods and services tax (GST) credit for a depreciating asset, you must deduct the amount of the GST credit from the asset’s adjustable value before working out the deduction for depreciation. The examples here use GST-exclusive figures.

    Assets purchased and installed between 01/07/12 and 31/12/13

    In general, if you purchased and installed an asset between 1 July 2012 and 31 December 2013 you can:

    • immediately write-off most depreciating assets costing less than $6,500
    • pool most other depreciating assets (irrespective of their effective life) in the general small business pool and depreciate at the rate of 30%
    • depreciate most newly acquired assets at 15% in the first year, regardless of when they were acquired in that year
    • claim an accelerated initial deduction for motor vehicles.

    Find out more

    Capital allowances

    End of find out more

    Assets purchased and installed between 01/01/14 and before 7.30pm (AEST) 12/05/15

    In general, if you purchased and installed an asset between 1 January 2014 and before 7.30pm 12 May 2015 you can:

    • immediately write-off most depreciating assets costing less than $1,000
    • pool most other depreciating assets (irrespective of their effective life) in the general small business pool and depreciate at the diminishing value rate of 30% thereafter
    • depreciate most newly acquired assets at 15% in the first year, regardless of when they were acquired in that year.

    Assets purchased and installed from 7.30pm (AEST) 12 May 2015 and 30 June 2017

    In general, if you purchased and installed an asset from 7.30pm (AEST) 12 May 2015 and 30 June 2017 you can:

    • immediately write-off most depreciating assets costing less than $20,000
    • pool most other depreciating assets (irrespective of their effective life) in the general small business pool and depreciate at the diminishing value rate of 30% thereafter
    • depreciate most newly acquired assets at 15% in the first year, regardless of when they were acquired in that year

    From 1 July 2017, the threshold is $1,000.

    Applying the simplified depreciation rules

    To apply the simplified depreciation rules for the 2014-15 income year, follow the steps below. For small business entities that have accounting periods that align with the financial year, the relevant months will be 1 July 2014 to 30 June 2015. Because the period may be different for taxpayers with substituted accounting periods, the relevant instant asset write-off thresholds have been included in the steps below.

    Step 1: Work out the opening pool balance for the general small business pool, taking into account:

    • your closing pool balance for the previous income year (this will include the closing balance for the general small business pool for the previous income year)
    • in the first year that you use these rules, the taxable purpose proportion of the adjustable values of assets that you held installed ready for use at the start of the income year
    • in subsequent years, adjustments to account for any
      • changes in taxable purpose proportion
      • new assets since last using the rules.

    Step 2: Work out the taxable purpose proportion of the adjustable value for:

    • depreciating assets (costing less than the threshold for certain assets) you first held or installed ready to use during the 12 months current income year - that is
      • that were purchased and installed on or after 7.30pm (AEST) 12 May 2015 and cost less than $20,000
      • that were purchased and installed between 1 July 2014 and before 7.30pm (AEST) 12 May 2015, and cost less than $1,000
    • each of the pooled assets you first held or installed ready to use during the current income year
    • any cost addition amounts you incurred or improvements you made in the current year to an asset you held or installed ready to use in an earlier income year.

    Step 3: Work out the taxable purpose proportion of the termination value of any assets you disposed of during the year.

    Step 4: Work out your deductions for:

    • assets you held or installed ready to use at the start of the income year
    • each of the assets you first held or installed ready to use during the current income year
    • any improvements you made, or cost addition amounts you incurred in the current income year to assets you held or installed ready to use for a taxable purpose in an earlier income year.

    Step 5: Work out your closing pool balance.

    Step 6: If you disposed of an asset, work out any balancing adjustment required.

    • Last modified: 17 Jul 2015QC 21100