With over 2.2 million small businesses in Australia it is crucial that owners identify and claim all of the small business depreciation deductions that are available to them. Small business entity simplified depreciation is just as the name suggests – a simpler way (introduced by the ATO) for small businesses to claim tax depreciation on their assets and help maximise their cash flow.
What is small business entity simplified depreciation?
A small business entity must qualify to use the simplified depreciation rules. According to the Australian Tax Office website:
You qualify for the simplified depreciation rules if you have a small business with an aggregated turnover (the total normal income of your business and that of any associated businesses) of less than:
- $10 million from 1 July 2016 onwards
- $2 million for previous income years.
Simplified depreciation rules for small businesses include:
- an instant asset write-off for assets that cost less than the relevant threshold
- a general small business pool for assets that cost the same or more than the relevant threshold, which has simplified calculations to work out the depreciation deduction.
If you operate a small business entity and elect to use the simplified depreciation rules, you must use the instant asset write-off on all eligible assets besides the excluded assets. Excluded assets may include items that you have leased out, assets you allocated to a low-value pool, grapevines, capital works deductions etc.
Small business entities and instant asset write-off
The instant asset write-off threshold was increased by the federal government from $30,000 to $150,000 on the 12th of March 2020 and extended until the 31st of December 2020. This means that small business entities that purchase plant and equipment assets up to the value of $150,000 ie commercial vehicles, fridges, air-conditioning systems, can deduct the full cost of that asset in the financial year it was purchased.
Any assets that are the same cost or more than the relevant instant asset write-off threshold will be placed into the small business pool.
What is the general small business pool?
Small business entities that purchase assets more than the relevant instant asset write-off threshold are placed into small business pool. Assets in the small business pool depreciate faster. This allows small business owners to claim a 15% depreciation deduction in the first year of when the asset was purchased (this percentage may increase to 57.5% for those assets eligible for the backing business incentive – accelerated depreciation). And then a 30% depreciation deduction for the following years. Under the current accelerated Depreciation rules, if the balance of the Small Business Pool is below the $150,000 threshold then the entire balance of the pool may be written off in the 2019/20 income year.
How do I claim for my depreciation?
Regardless of the business structure you are operating under (be it a small business entity or other), it is important to discuss and organise a Capital Allowance and Tax Depreciation Schedule from a qualified quantity surveyor. The nature of commercial depreciation incorporates many other factors such as ‘scrapping’. If you have disposed of a plant and equipment asset that has a depreciation value remaining, you are entitled to claim that residual depreciation amount in the year it was disposed. Alternatively, you may have completed ‘capital works’ at your commercial premises – for this, you are entitled to claim depreciation for the structural improvement you have made.
Maximising tax depreciation claims for both landlords and leasees of commercial properties has the opportunity to increase their cash flow. Here at Capital Claims Tax Depreciation we can help you with that. We have over two decades of experience in tax depreciation for commercial properties. Speak to our commercial property expert Alex Konjarski toady about your commercial property! Call Alex on 1300 922 220 or email him at alexk@capitalclaims.com.au
