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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, you:

    • immediately write-off (deduct their full cost in the year you buy them) most depreciating assets that cost less than $20,000 each, that were bought and used, or installed ready for use, from 7.30pm (AEST) on 12 May 2015 until 30 June 2018
    • pool most other depreciating assets that cost $20,000 or more in a small business asset pool and claim
      • a 15% deduction in the first year (regardless of when you purchased or acquired them during the year)
      • a 30% deduction each year after the first year
       
    • write-off the balance of your small business pool at the end of an income year if the balance, before applying any other depreciation deduction, is less than $20,000.

    The current instant asset write-off threshold is $20,000. This threshold applies until 30 June 2018. It has changed over the last few years (see Instant asset write-off).

    The government proposed extending the $20,000 instant asset write-off (immediate deductibility) threshold to 30 June 2019 in the 2018-19 Budget. This change is not yet law.

    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:

    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 $20,000 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 $20,000 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 generally appear as one transaction.

    However, for the purpose of the simplified depreciation rules, the transactions are considered separate. If the purchase price of your asset (irrespective of the amount you were paid for your trade-in) is $20,000 or more, 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: Small business pool

    Example: Simplified depreciation – small business pool

    Loretta bought a trailer for her event management business on 1 December 2015 for $15,000 and a second larger trailer on 2 February 2016 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)
    • calculate her depreciation deduction for pool assets by:
      • adding the cost of the $28,000 trailer to her small business pool (as it is over the $20,000 threshold)
      • 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 2015–16 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: 07 Jun 2018QC 33726