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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

    In the 2015 Budget, the Government announced its intention to 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 small business simplified depreciation pool will apply to assets costing $20,000 or more. The measure will require legislation and will apply to assets acquired from 7.30pm on 12 May 2015 until 30 June 2017.

    At the time of publishing, these changes had not yet become law. 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

    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: 15 May 2015QC 21100