Act NOW if you wish to access immediate tax deductions for your small business

The Government is planning to remove the immediate tax deduction for depreciating assets costing less than $6,500 and the accelerated depreciation allowances for motor vehicles which  are currently available to small businesses (i.e. businesses with an annual aggregate turnover of less than $2 million).  It is important that you ACT NOW to access immediate tax deductions for your small business.  

These concessions were enacted by the previous Government and were to be funded by the Minerals Resource Rent Tax (MRRT). However following the proposed repeal of the MRRT, these concessions will be removed as well. The Bill, if passed, will be effective from 1 January 2014.

Current Rules

Presently, the main concessions available for small businesses with depreciating assets used in the business are as follows:

  • Plant and equipment – Assets costing less than $6,500 are subject to an immediate tax deduction; and
  • Motor vehicles – An immediate tax deduction of the first $5,000 value of the motor vehicle plus 15% of any residual value. The remaining value is allocated to the small business general pool with a rate of 30% to be claimed in subsequent income years.

Impact of the Proposed Amendments

The proposed amendments will remove the current rules and replace them with the following small business concessions:

  • Plant and equipment – The $6,500 threshold will be reduced to the previous limit of $1,000, with assets exceeding the $1,000 threshold to  be allocated to a general small business pool for tax depreciation claims (i.e. 15% tax depreciation in the first year and 30% in subsequent years on a diminishing value basis); and
  • Motor vehicles – No immediate tax deduction will be available. The total cost of your motor vehicle will be treated like any other depreciating asset and allocated to the general small business pool.

It is expected that if the Bill is passed to repeal the MRRT in the new year, the proposed amendments will be applied retrospectively. This means that the repeal of these small business concessions will be expected to commence from 1 January 2014, which is less than four weeks away.

What you can do

If you are an eligible small business wishing to maximise your tax deductions for the 2013-14 income year, it is advised that you bring forward your purchases of the above-mentioned depreciating assets to before 1 January 2014, so you can utilise the immediate deduction concessions currently available to you.

To be able to access these concessions the asset purchased will need to be installed ready for use before 1 January 2014.

Therefore if you have equipment that you know needs to be replaced shortly these concessions may make it worthwhile making the purchase and arranging delivery before the year ends. This could include for example ageing IT equipment or furniture.