Instant write-off for small businesses
Small businesses will be able to claim an immediate tax deduction for each asset that costs less than $20,000 (net of GST credits), to the extent the asset is used for tax-deductible purposes.
This new threshold of $20,000 applies for a limited time only for depreciating assets acquired and installed ready for use between 13 May 2015 and 30 June 2017. After 30 June 2017, the threshold will revert back to $1,000.
Assets that cost $20,000 or more will not be eligible for the immediate deduction. Instead, they can be deducted over time using a small business pool. The small business pool provides a deduction of 15% in the first year and 30% each year thereafter until it is all deducted.
Small business entities
Only small businesses that meet the definition of a small business entity (SBE) will be eligible for the instant write-off. SBEs are broadly all those businesses with an aggregate turnover of less than $2m.
Does the $20,000 threshold include or exclude GST?
The $20,000 cost threshold is net of any GST credits the business can claim. This means the price of each asset can be $19,999 plus GST if the small business is registered for GST and can claim a credit for the GST on their business activity statement.
New and second hand assets
Both new and second hand assets can be eligible for the instant write-off.
Are all assets eligible?
Most assets will be eligible for the instant write-off, except a small number of exclusions. Among the excluded assets are trading stock items, land, non-farming buildings and capital works, horticultural plants and software development pools. These items all have their own tax treatment.
Farm equipment and vehicles will be eligible assets.
Water facilities for primary producers
Small business farmers can choose to claim an instant write-off, rather than the usual three year write-off, for water facility items costing less than $20,000. Water facilities are those items used to conserve or convey water on the farm (e.g. irrigation equipment, tanks, troughs).
Other tax incentives for primary producers
The start date of the accelerated depreciation measure announced in the 2015 budget available for all farmers regardless of the size of their farm has been brought forward to 12 May 2015 from 1 July 2016.
Australian farmers can now claim a tax deduction on all capital expenditure on water facilities, fodder storage assets and fencing incurred since the 2015 budget was handed down at 7:30 pm on 12 May 2015. Farmers can fully deduct the cost of water facilities and fencing in the year they are purchased and deduct the cost of fodder storage assets such as silos and tanks used to store grain and animal feed over three years. Farms with turnover of less than $2m qualify as a small business, and are therefore also eligible to immediately write-off all asset purchases up to $20,000. These announced changes are still to be legislated.