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  • Simplified depreciation rules

    Overview

    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

    The Minerals Resource Rent Tax Repeal and Other Measures Act 2014 applies from the 1 January 2014. This Act reduces the threshold for the instant asset write-off from $6,500 to $1,000; and the accelerated depreciation deduction for motor vehicles no longer applies for vehicles purchased for more than $1,000.

    In general, if you purchased an asset from 1 January 2014 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 rate of 30%
    • depreciate most newly acquired assets at 15% in the first year, regardless of when they were acquired in that year.

    For more information see our new legislation web pages on instant asset write-off and motor vehicles, or check out our small business concession case studies.

    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.
    • Goods and services tax (GST)
    • Where you can claim a 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 01/0712 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

    Applying the simplified depreciation rules

    To apply the simplified depreciation rules for the 2013-14 income year, follow these steps:

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

    • your closing pool balance for the previous 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:

    • assets (costing less than the threshold for instant asset write-off) you first held or installed ready to use during the current year
      • that were purchased and installed on or after 1 January 2014 and cost less than $1,000
      • that were purchased and installed between 01 July 2013 and 31 December 2013 and cost less than $6,500
       
    • each of the pooled assets you first held or installed ready to use during the current 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 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: 27 Aug 2014QC 21100