A small business purchases equipment costing $5000 on November 20, 2013. The equipment is installed ready for use on December 1, 2013, but is not used at that time. The business starts to use the equipment on February 1, 2014. The business has a June 30 year end.
Although the business started to use the equipment after January 1, 2014, the $6500 instant asset write-off threshold continues to apply as the equipment was installed ready for use before January 1, 2014. The business would therefore be able to claim a deduction for the full cost of the equipment because the taxable purpose proportion of its adjustable value is under $6500 (being $5000 × 100% business estimate use).
Under the existing law, a small business entity can claim a special deduction in respect of a motor vehicle used in the business in the income year in which the vehicle was first used or installed ready for use. That deduction is equal to the taxable purpose proportion of the first $5000 value of the motor vehicle plus 15% of any additional value. The remaining value of the motor vehicle is then allocated to the small business entity’s general small business pool and depreciated as part of that pool at an ongoing rate of 30% in later income years.
Up to January 1, 2014, these rules would only apply where the motor vehicle cost $6500 or more (as motor vehicles that cost less than $6500 would be written-off under the general instant asset write-off rule). The mining tax repeal bill would repeal these special motor vehicle rules from January 1, 2014. Instead, the general capital allowance provisions would apply to depreciating assets that are motor vehicles in the same way they do to all other depreciating assets.
SMEs should already be aware of these pending changes and the need to act now, but the uncertainty created by the still undecided fate of the amendments isn’t helping. Depending on the asset involved, it may already be too late, but if an asset can be purchased and installed before January 1, 2014, and any other relevant rules satisfied, the $6500 write-off should be protected.
Playing devil’s advocate for a moment, if Labor and the Greens delay passage of the bill until next year, it’s not inconceivable that the $6500 threshold cut-off date could be extended (maybe even to June 30, 2014) in a deal to get the bill passed. I’m not saying this will happen, and no one has suggested it will, but the hurly-burly of debate in Parliament on this legislation could see any manner of amendments proposed. As I said, the uncertainty surrounding the legislation is not helpful to business.
It might be a good time to speak to your accountant.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
