Small Business deductions
Last chance to access small business immediate deductions
Small businesses thinking of acquiring a depreciating asset costing less than $6,500 or a motor vehicle need to do so by 1 January 2014 before the concessions available for capital purchases are removed. This was one of the surprises to come from the release of draft legislation by the Government to repeal the minerals resource rent tax (MMRT) from 1 July 2014. As part of the repeal, the Government will also unwind certain concessions that were intended to be funded by the MMRT. For small businesses, the $6,500 instant asset write-off and upfront accelerated deductions for motor vehicle purchases are concessions that will no longer be available. The Bill relating to the repeal of the MMRT was introduced into the House of Representatives on 13 November 2013.
What are the current and the proposed measures?
The key capital allowance concessions currently available to small business may be summarised as follows:
- An immediate tax deduction is available for business plant and equipment purchased with a cost of less than $6,500, and
- A small business which purchases a motor vehicle for business use is entitled to an immediate deduction of the first $5,000 value of the motor vehicle plus 15% of any additional value. The remaining value is allocated to the small business general pool with a rate of 30% to be claimed in subsequent income years.
The proposed amendments however will:
- Reduce the $6,500 threshold to the previous amount of $1,000 so that assets exceeding the $1,000 threshold will instead be allocated to a general small business pool for depreciation claims, and
- Repeal the special rule for motor vehicles so that motor vehicles will be depreciated by small businesses in the same manner as other depreciating assets (ie. by being allocated to the general small business pool).
The
repeal of these small business capital allowance concessions will apply from 1 January 2014. This is less
than five weeks away and six months earlier than the proposed repeal of the
MRRT.
Small businesses must act now!
Without guidance to the contrary,
eligible small businesses should bring forward their capital purchases before 1
January 2014 if they wish to maximise their deductions for the 2013-14 income
year.
Importantly, the instant asset write-off and special deduction for motor
vehicles can only be claimed if the relevant asset is 'first used' or is
'installed ready for use' before 1
January 2014. The mere execution of a contract to acquire an item
of plant or equipment would therefore not be deemed sufficient under the tax
law for there to be a deduction.
Therefore, an increased capital allowance deduction will be available if the
small business takes possession of the asset and uses it in business before the
end of the 2013 calendar year. At the very least, the asset must be
'installed and ready for use' even though it may be intended by the business
that the asset be used in the 2014 calendar year.
