SMALL businesses are welcoming one small change delivered in the federal budget.
The $20,000 “instant” asset deduction will now be available to many more agribusinesses with the definition of ‘small business’ set to change from July 1, 2016.
Classifying small business
For tax purposes a small business is currently defined as a business with aggregated turnover less than $2 million in the current or previous income year.
But in last year’s budget the government announced the small business turnover threshold would increase to $10m from July 1, 2016.
The legislation for this change has now been passed.
Many more businesses will now be able to access many additional benefits including:
- 28.5 per cent company tax rate (proposed to reduce to 27.5pc from July 1, 2016, as part of the same bill that proposes to increase the small business turnover threshold)
- Small business income tax offset for individual taxpayer’s with small business income (Currently 5pc of the tax on small business income and capped at $1,000)
Further benefits extend to:
- Simplified depreciation rules
- Simplified trading stock rules
- Immediate deduction for some prepaid expenses
- Small business restructure rollover
There are also other concessions available in relation to capital gains tax, goods and services tax and fringe benefits tax that have their own additional eligibility criteria, as well as other administrative concessions for small businesses.
Importantly, the small business test to allow access to special capital gains tax concessions remains capped at a $2m turnover.
Instant asset write-off
The instant asset write-off provisions allowing immediate deductions on items up to $20,000 available to small business were expected to cease on June 30 and revert back to $1,000.
In this week’s budget the Treasurer announced an extension on this concession through until June 30, 2018.
Small business and farms have been making great use of these tax breaks and with the extension of the definition of small business entities to now include turnovers up to $10 million it is expected many more businesses will take advantage of this in the 2017 and 2018 financial years.
Rules to remember
The total cost of the asset must be below $20,000.
This includes costs to bring the asset to its present condition and location if these occurred in the same financial year.
If the total cost is more than $20,000 the asset cannot be immediately deducted even if the cost is split between multiple invoices that are each individually less than $20,000.
Install the asset
The asset must be installed and ready for use by the end of the financial year in which you wish to claim the amount.
Even if the asset is paid for before year end, if it is not also delivered or constructed before year end it will not be able to be deducted until the next financial year.
If the asset is installed and ready for use before the end of year, and additional costs to bring it to its present condition and location are incurred in the next financial year, these additional costs are evaluated separately against the low cost asset threshold applicable to each year.
Business or private use?
Total cost is not adjusted for private use when evaluating whether the asset is above or below the threshold.
If an asset costing $30,000 is used 50pc for business purposes and 50pc for private purposes, although only $15,000 of the cost is deductible, this cannot be immediately deducted because the total cost is still $30,000 which is above the $20,000 threshold.
Total cost does not include any GST that can be claimed on the purchase.
It’s all in the name
Assets need to be acquired in the name of the entity carrying on the business.
Individual partners of a partnership, beneficiaries of a trust or directors/shareholders of a company are not carrying on a business in their own right which means they are not themselves a small business entity and not eligible to apply the simplified depreciation rules.
- Based in Cooma, Kathy Kelly is a director of Boyce Chartered Accountants and specialises in tax and agriculture. She joined Boyce in 1985 from Ernst amd Young’s audit division.
Boyce Financial Services Pty Limited are Authorised Representatives of Lonsdale Financial Group Limited.
The legislation to increase the small business turnover threshold to $10 million has now been passed, opening the doors to many new businesses to claim 'small business' status.
- Kathy Kelly