The Federal Government has announced a number of measures to help stimulate the Australian economy and encourage business investment. The major implications for financing asset’s and equipment for small businesses are such:
Accelerated Depreciation for Small Businesses
source: Budget Paper No 2, p 19
The threshold below which small businesses can claim an immediate deduction for the cost of an asset they start to use or install ready for use will be temporarily increased from the current $1,000 to $20,000. The $20,000 threshold will apply on a per item basis (without any limitations on the number of items) for items first used or installed ready for use for a taxable purpose from 7:30pm (AEST) Tuesday 12 May 2015 until 30 June 2017. In line with the tax cuts, it is available for small businesses with an aggregate annual turnover of less than $2 million. Whilst the Treasurer has stated that assets can “instantly” be written off, it is important to note that the measure is not a rebate – it is a deduction from income that requires a business to be in a position to pay tax – if a business has made a loss for the period; there is no immediate cash flow benefit.
With the increase of the individual asset threshold to $20,000, assets valued at more than $20,000 or more can be included in the entity’s small business pool and depreciated at 15% in the first income year and 30% each income year thereafter, in the same way the rules currently apply for assets costing $1,000 or more. Similarly, over the period from 7.30pm (AEST) Tuesday 12 May 2015 up to 30 June 2017, the balance in the small business pool can be immediately deducted if it is less than $20,000 (including an existing pool). The current rules preventing a small business using the simplified depreciation regime for five years if it has previously opted out, will be suspended until 30 June 2017. While small businesses can access the simplified depreciation regime for a majority of capital assets, certain assets including inventory are not eligible (assets such as horticultural plants and in‐house software) due to specific depreciation rules applying.
The measures will encourage small business to bring forward investment in the assets they need to grow their business and service their customers. The new threshold will also mean small businesses spend less time tracking assets across years for tax purposes. This reduces red tape and allows business owners to focus on running and growing their business. The cash flow benefit received by an incorporated tax paying business will equate to the depreciation value multiplied by the applicable tax rate (e.g. a $15,000 asset acquired in FY 15/16 for an incorporated small business will result in a $4,275 cash flow benefit, before considering how the asset was financed).