Beginning with the 2012/13 income year, small businesses have been able to claim an immediate tax deduction for business assets purchased under a certain value. In broad terms, deductions for most of the depreciating assets acquired by a small business entity are determined in one of the following ways:
- an asset receives an immediate deduction if it costs less than the applicable threshold in the year the entity starts to use it or it is installed ready for use. The deduction is limited to the taxable purpose proportion of the asset’s cost, and
- with limited exceptions, depreciating assets (other than buildings) costing exactly the applicable threshold or more are pooled. Such assets are depreciated using a diminishing value rate of 15% in the first year of use and 30% for subsequent years. If the closing value of the pool balance falls below the applicable threshold, the entire balance can also be deducted.
Updated table for instant asset write-off threshold
As the 2019 federal budget announcement has been passed by both houses of parliament, and is awaiting royal assent, the updated threshold table is as follows:
|Purchase date or date asset first used (or installed ready for use) for a taxable purpose||Threshold|
|From 2012/13 to 31 December 2013||$6,500|
|1 January 2014 to 12 May 2015 (7:30pm AEST)||$1,000|
|12 May 2015 (7:30pm AEST) to 28 January 2019||$20,000|
|29 January 2019 to 2 April 2019 (7:30pm AEDT)||$25,000|
|2 April 2019 (7:30pm AEDT) to 30 June 2020||$30,000|
|From 1 July 2020||$1,000|
New rules for medium-sized businesses
Businesses with an aggregated annual turnover between $10m and $50m will also be eligible for the instant asset write-off from 2 April 2019 to 30 June 2020. Prior to this announcement, businesses of this size were required to use ITAA 1997 Div 40 to calculate depreciation on the purchase of assets.
However, medium-sized businesses have been specifically excluded from the ability to use ITAA 1997 Div 328, which relates to the small business deprecation pools.
As per above, to be eligible to claim the instant asset write-off, the asset must be first used, or installed ready for use, after 7:30pm AEDT on 2 April 2019.
Small business depreciation pools
For the 2018/19 and 2019/20 income years, a small business pool value which is below $30,000 before the calculation of depreciation can be fully written off.
The depreciation calculation comes in after adding new additions that would have cost more than the asset thresholds during the 2018/19 income year.
Continued suspension of “lock-out” rules
Also, the current suspension of small business depreciation “lock-out” rules will also continue for another 12 months to 30 June 2020.
Generally, a taxpayer who stops using (or opts-out of) simplified depreciation even though they are eligible to do so must stay out of the regime for five years. These lock-out rules have not applied since the introduction of the $20,000 instant asset write-off from the 2015 federal budget.