Simplified Depreciation Rules for SBE's

The Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 has received Royal Assent.

The amendments mean there are three tiers to consider within the 2019 financial year for new and second hand-assets

The first tier is the $20,000 threshold for depreciable assets that are acquired before 29 January 2019 - Turnover less than $10 million.

The second tier is the $25,000 threshold for assets first used or installed between 29 January 2019 and 2 April 2019 - Turnover less than $10 million.

The third tier is the $30,000 threshold for assets first used and installed after the 2 April 2019 and before 1 July 2019 - Turnover less than $50 million.

For the 2020 financial year there are two tiers to consider for new and second-hand assets

The first tier is the $30,000 threshold for assets first used and installed after the 1 July 2019 and before 12 March 2020 - Turnover less than $50 million.

The COVID 19 concession is a $150,000 threshold for assets first used and installed on or after the 12 March 2020 and before 1 July 2020 -Turnover less than $500 million (See some exclusions in the link above).

For the 2021 financial year there are two tiers to consider for new and second-hand assets

The first tier is the $150,000 threshold for assets first used and installed after the 1 July 2020 and before 6 October 2020 - Turnover less than $500 million.

The Full Expensing concession has no threshold for assets first used and installed by 30 June 2022 -Turnover less than $500 million (See some exclusions in the link above).

Simplified Small Business Pool (some assets are not eligible e.g. owner leases them predominantly to another entity)

In addition, if the assets are in a simplified small business pool (Turnover under $10 million), then an immediate deduction can be claimed if the balance of the pool at year end is less than the threshold of $30,000 (2019) and $150,000 (2020), No Threshold (2021). 

For 2019 and 2020, the threshold is after adding any new assets and subtracting any proceeds of disposal of old assets, but prior to the deduction of the current year’s depreciation amount (ATO says no double dip allowed).

Part Business Use

While only the taxable purpose proportion is deductible, the entire cost of the asset must be less than the threshold.

Originally for the period 7.30 p.m. 12 May 2015 to 30 June 2017  - extended to 30 June 2018

The immediate write-off for individual small business assets is increased from less than $1,000 to less than $20,000 for businesses with an annual turnover of less than $10 million.

and

The immediate deduction of the balance of the pool if the balance is less than $20,000 at the end of the year, prior to the deduction of the current year’s depreciation amount (ATO says no double dip allowed).

While only the taxable purpose proportion is deductible, the entire cost of the asset must be less than the threshold.

Treatment of eligible depreciating assets purchased after entering the SBE system

Treatment of eligible depreciating assets purchased before entering the SBE system

Notes:

1. Under the SBE system from 1 July 2007 a small business entity can choose whether to use the simplified depreciation rules or the uniform capital allowance rules. However if it chooses the simplified depreciation rules then it must be applied to all small business assets. If it chooses to opt out of the simplified depreciation rules, the uniform capital allowance system will only apply to assets purchased after the opt-out day.
 

2. The thresholds are applied to the full cost of the asset not just the business use portion.

3. For jointly owned assets the thresholds apply to each individual taxpayer’s share of the asset.

4. If you dispose of an asset in the SBE ‘General’ pool the proceeds reduces the running balance of that pool.  The proceeds are not assessable income unless they exceed the balance in that entire pool.  However if you dispose of an asset for which you have claimed an immediate tax deduction the proceeds are assessable.

5. The above rates still do not apply in some cases including primary producers, expenditure incurred in developing computer software, pre-July 2001 assets with an effective life greater than 25 years and assets that are leased out.

6. Small businesses can claim an immediate write off of the first $5,000 of any motor vehicle purchased after 1 July 2012. The remainder of the purchase price can be transferred into the general business depreciation pool.

Extra Bonus – If the balance of a pool after taking into account any additions and disposals, but before reducing it for any deductions, is below $6,500 but greater than zero you can claim a deduction for the remaining amount. The closing balance then becomes zero.

NB! If you also use depreciable assets to earn non-business income (such as salary and wages) you are also permitted to use the Simplified Depreciation Rules for those assets even though they are not used in the SBE. This does not apply to property that is subject to a depreciating asset lease, such as long term rental property assets.

For more information refer to the SBE Depreciation links below.

> the small business instant asset write-off threshold has been increased from $1,000 to $6,500

> the long-life small business pool and the general small business pool have been consolidated into the general small business depreciation pool to be written off at the rate of 30% (15% in the first year).

> small businesses can claim an immediate write off of the first $5,000 of any motor vehicle purchased after 1 July 2012. The remainder of the purchase price can be transferred into the general business depreciation pool.

Extra Bonus – If the balance of a pool after taking into account any additions and disposals, but before reducing it for any deductions, is below $6,500 but greater than zero you can claim a deduction for the remaining amount. The closing balance then becomes zero.

NB! If you also use depreciable assets to earn non-business income (such as salary and wages) you are also permitted to use the Simplified Depreciation Rules for those assets even though they are not used in the SBE. This does not apply to property that is subject to a depreciating asset lease, such as long term rental property assets.

For more information refer to the SBE Depreciation links below.

Treatment of eligible depreciating assets purchased after entering the STS/SBE system

Treatment of eligible depreciating assets purchased before entering the STS/SBE system

Notes:

1. Under the STS system, if the business that owned the asset had elected to enter the STS system, the STS depreciation treatment was compulsory for all small business assets.  Under the SBE system from 1 July 2007 a small business entity can choose whether to use the simplified depreciation rules or the uniform capital allowance rules. However if it chooses the simplified depreciation rules then it must be applied to all small business assets. If it chooses to opt out of the simplified depreciation rules, the uniform capital allowance system will only apply to assets purchased after the opt-out day.
  

2. The thresholds are applied to the full cost of the asset not just the business use portion.

3. For jointly owned assets the thresholds apply to each individual taxpayer’s share of the asset.

4. If you dispose of an asset in the ‘General’ or ‘Long-Life’ pool the proceeds reduces the running balance of that pool.  The proceeds are not assessable income unless they exceed the balance in that entire pool.  However if you dispose of an asset for which you have claimed an immediate tax deduction the proceeds are assessable.

5. The above rates still do not apply in some cases including primary producers, expenditure incurred in developing computer software, pre-July 2001 assets with an effective life greater than 25 years and assets that are leased out.