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Asset Immediate Write Off – The Good and the Bad

Article By Adam Hurwood | | Accounting & Tax
The government has recently passed temporary legislation to allow small businesses to claim an immediate deduction on assets acquired costing less than $20,000. This will apply to assets purchased after the budget announcement on 12 May 2015 and will end on 30 June 2017.

In addition to these provisions, an immediate deduction can be claimed if the balance of the small business general pool falls below $20,000.

The key features of the new provisions are:

• The provisions apply to small businesses. A small business must have a group turnover of less than $2 million.
• Immediate deduction will apply for business assets purchased for less than $20,000 between 7:30pm 12 May 2015 and 30 June 2017.
• The asset must be first used of installed ready for use between these dates for the rules to apply
• These assets can be either new or old
• There is no limit to the quantity of business assets purchased as long as the asset is less than $20,000.
• A write off on small business depreciation pools will apply to depreciation pool balances below $20,000.
• Assets $20,000 and more will be subject to the existing small business depreciation rules. The existing rules allow a depreciation deduction of 15% in the first year of purchase and 30% for every year thereafter.

Many small businesses may have already taken advantage of these measures, but claiming an immediate write off can pose future taxation implications

The Good Side

Say for example, you purchase a new van for the business costing $23,000 excluding GST. At the end of the year you would have been able to claim the entire cost of the vehicle. You would be entitled to a claim 15% of the cost of the vehicle under the normal small business depreciation provisions. You would also be able to claim the closing balance of the pool provided that the balance is less than $20,000.

In addition to this claim, you would be able claim the entire value of any other assets purchased under $20,000.

The Bad Side

A sale of plant and equipment will reduce the small business pool balance. An assessable balancing adjustment will apply if the small business pool becomes a negative balance. If in the next year you decide to sell the van, then the entire proceeds (net GST) would become assessable. This may come to a surprise to many as they may have under-estimated the tax consequences of claiming the immediate deduction upfront.

Please do not hesitate to contact your Altitude Advisor to find out how these provisions can work of you.