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New Accelerated Depreciation Rules Receive A Warm Welcome

Brent Ruddiman • June 9, 2015

Two of the most welcome announcements in this year's Federal Budget have been the introduction, as part of the Government's Jobs and Small Business package, of accelerated depreciation for small businesses and changes to immediate deductions for capital expenditure by primary producers. Both moves are widely seen as being excellent tax incentives, giving a much needed confidence boost to business owners and farmers alike.

$20,000 immediate deduction for small business

Under the new rules, small business entities with a turnover of less than $2 million can now claim an immediate tax deduction for each depreciating asset costing less than $20,000. Key points to note are:

  • Key dates and times are between 7.30pm (AEST) on 12 May 2015 and 12.59pm on 30 th June 2017. Depreciating assets acquired, first used or installed outside of these times will continue to be assessed under the     previous instant asset write-off threshold of $1,000.
  • Assets don't have to be new; second hand items are also eligible for the deduction.
  • The taxable purpose proportion indicates the asset's use in the income year, with the deduction being claimed in the year it was first used or installed.

Excluded assets include horticultural plants and in-house software allocated to a software development pool. However, these assets may fall under specific depreciation rules.

There's good news too for any asset with a price tag greater than the $20,000 allowable. Such acquisitions can be included in a small business pool which allows for the deduction over a set period of time, with deductions in the first income year equalling 15%, and 30% each following income year.

In the rush to buy assets, business owners need to be mindful that to be eligible for a deduction, the asset must be used for actual income-producing purposes. The ATO has made it plain that it will be keeping   a close eye on the new scheme, warning that it won't hesitate to take swift action against any business found to be rorting the system.

Primary producers benefit from accelerated depreciation on vital infrastructure       

Under current ATO rules, primary producers can claim a deduction for a decline in the value of:

  • Water facilities over three years;
  • Fences over a period of up to 30 years; and
  • Fodder storage assets over a period of up to 50 years.

Announcements in May's Federal Budget now allow all primary producers to:

  • Deduct the cost of fencing and water facilities, including dams, tanks, bores, irrigation channels, pumps, water towers and windmills, with immediate effect; and
  • Depreciate the cost of fodder storage assets, including silos and storage tanks for feed and grain, over three years.

Similar to the $20,000 deduction for small business, this amendment applies to eligible assets and expenditure from 7.30pm (AEST) on 12 May 2015.

Federal Agriculture Minister, Barnaby Joyce, has said in a joint statement with Federal Treasurer, Joe Hockey, that long term drought preparedness had been a "key priority" in instigating the new measures, which are part of more than $400 million in targeted support for farmers and communities who continue to be impacted by severe conditions.

For professional and up to the minute advice on either of these incentives, contact the KDA Group on 02 4861 8383 and speak to one of our consultants.

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