Depreciation made simple for small business

Stressed accountant

Depreciation has been made simpler for small business in the 2012-13 income year. There are three primary changes and they may impact your timing of asset purchases. 

A greater depreciation deduction may reduce your taxable income in a high profit year.

Firstly, there is an increase to the instant asset write-off threshold. You can now claim an outright deduction (write-off) for most depreciating assets purchased that cost less than $6,500 each. This has increased from $1,000.

For example, if you buy a new laptop for $2,000 and a high resolution printer for $4,500. Both the laptop and printer are depreciating assets used entirely for the business. As each asset cost less than $6,500, you can claim a deduction of $2,000 for the laptop and $4,500 for the printer in the 2012-13 income year.

The second area of new simplified rules is with regard to accelerated deduction for motor vehicles. From 2012-13, if you buy a motor vehicle to use in your business, you can claim an immediate $5,000 deduction. You can deduct the remainder of the cost through the general small business pool at 15% for the first year and 30% for later years.

Pooling for depreciation has also been simplified for small business. From 2012-13 most depreciating assets that cost $6,500 or more (regardless of their effective life) can all be ‘pooled’ under the simplified depreciation rules and deducted at a single rate of 30%. The exception is newly acquired assets (such as a motor vehicle) which are deducted at 15% for the first year.

If you had a long life pool (which no longer exists), its closing balance is rolled over to form part of the opening balance of the general pool for the 2012-13 income year (to be depreciated at a rate of 30% instead of 5%).

Speak to your accountant to ensure that you receive the full benefit from the new depreciation rules and so that you can time your purchases of assets to reduce tax in the most beneficial tax year.