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Depreciation for small business

Depreciation for small business

On 24 October 2013, the government announced that it will repeal the Minerals Resource Rent Tax and other related measures. The repeal of the provision allowing small businesses to instantly write-off certain assets is one of the other related measures. The changes to this related measure are expected to apply from 1 January 2014.

From the 2012/13 income year small businesses have been able to write-off depreciating assets costing less than $6,500 in the income year in which they start to use the asset, or have it installed ready for use. They can also depreciate most other assets in the general small business pool at a rate of 15% in the first year and 30% thereafter.

If the proposed changes are enacted, the threshold will change and only assets costing less than $1,000 (acquired and installed ready for use after 31 December 2013) will be eligible for immediate write-off. Assets costing $1,000 or more will need to be depreciated in the general small business pool.

Assets costing less than $6,500 and acquired and installed ready for use by the small business between 1 July 2013 and 31 December 2013, will still be eligible to be immediately written-off.

The ATO advises that taxpayers, including those who use early balancing substituted accounting periods, who lodge a tax return for the 2013/14 income year can self-assess under the existing law.

Once the law is enacted, the taxpayer who self-assessed in that way will need to seek an amendment to apply the new law. No shortfall penalty will apply and if they seek to amend their return within a reasonable time, the ATO will also remit the shortfall interest charge (SIC) to nil. If an amendment is not sought within a reasonable time, SIC will be charged from the date the change becomes law.

The Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 [No. 2] was introduced in Parliament on 23 June 2014.

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