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Ruling
Subject: Depreciation deduction
Question
Is the entity entitled to an immediate deduction for items costing less than $1000 under Subdivision 328-D of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer: Yes
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts
The trust is in the hiring business.
Replacement of low cost assets is a large part of your business.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 328-180(1)
Income Tax Assessment Act 1997 subsection 328-180(2)
Income Tax Assessment Act 1997 subsection 40-425(2)
Reasons for decision
Summary
The entity is entitled to a deduction under subsection 328-180(1) of the ITAA 1997 for all assets provided they meet the definition of low cost assets.
Detailed reasoning
Capital allowances for small business entities
You are able to calculate your deductions and some amounts of assessable income under Subdivision 328-D of the ITAA 1997 instead of Division 40 of the ITAA 1997 for all depreciating assets you hold if:
· You are a small business entity for the income year; and
· You started to use the assets or have them installed ready for use, for a taxable purpose during or before that income year.
however, there are some exceptions.
An entity is a small business entity for an income year if:
· It carries on a business in the current year; and
· One or both of the following applies:
o you carried on a business in the income year before the current year and your aggregated turnover for the pervious was less than $2 million.
o your aggregated turnover for the current year is likely to be less than $2 million.
In this case the entity operated the hire business in the 2010-11 financial year and its turnover was less than $2 million in the 2009-10 financial year, therefore the entity is considered a small business entity. As the entity is considered a small business entity, it started using the assets in the 2010-11 financial year and none of the exceptions apply, it is entitled to calculate deductions for depreciable assets under Subdivision 328-D of the ITAA 1997.
Low cost assets
Under subsection 328-180(1) of the ITAA 1997 you deduct the taxable purpose proportion of the adjustable value of a depreciable asset for the income year in which you start to use the asset, or have it installed ready for use, for a taxable purpose if:
(a) you were a small business entity for that year and the year in which you started to hold it; and
(b) you chose to use this Subdivision for each of those years; and
(c) the asset is a low cost asset.
Under subsection 328-180(2) of the ITAA 1997 you can also deduct, for an income year for which you are a small business entity and you choose to use this Subdivision, the taxable purpose proportion of an amount included in the second element of the cost of a low-cost asset for which you have deducted an amount under subsection (1) if:
(a) the amount so included is less than $1,000; and
(b) you started to used the asset, or have it installed ready for use, for a taxable purpose during an earlier income year.
Subsection 40-425(2) of the ITAA 1997 states a low-cost asset is a depreciating asset whose cost as at the end of the income year in which you start to use it, or have it installed ready for use, for a taxable purpose is less than $1,000.
In this case the entity is a small business entity and it has chosen to use Subdivision 328-D of the ITAA 1997 as it has claimed a deduction under general small business pool in previous years and the assets are considered low cost assets. The entity uses the low cost assets wholly for a taxable purpose.
The entity is entitled to a deduction under subsection 328-180(1) of the ITAA 1997 for all assets provided they meet the definition of low cost assets.