2015 Budget — $20,000 Capital Purchases Deduction Information
The 2015 Australian Government Budget contains key wins for small business in the form of accelerated depreciation for expenditure on capital items.
Prior to this budget, small businesses were eligible for an immediate tax deduction for all capital expenditure on items of plant and equipment that were installed and ready for use during the financial year up to a value of $1,000. The good news is the proposed budget measures have increased this threshold up to $20,000 (GST Excluded). This $20,000 limit applies to each individual item. Small businesses can apply this $20,000 rule to as many individual items as they wish.
Eligible Businesses — To take advantage of this initiative, the business must have turnover of less than $2 million a year and it is important to note the budget is quite clear that this is “aggregated” turnover. Therefore, if the small business has two companies, both with a turnover of $1.5 million, then the aggregated turnover of the business group is $3 million, and the small business would not be eligible for the new accelerated depreciation.
How It Works — The legislation has not been fully drafted as at the date of publication of this article, however some key mechanics of the legislation are likely to be: • If you lease the item you don’t own the item, and therefore will not be eligible to claim the accelerated deduction. • If you purchase the item under a separate type of finance contract, that contract will have to confer direct ownership to the business owner, in full, at the purchase date. • Acceptable forms of finance are chattel mortgage, loan or asset finance loan. • A cash payment is also acceptable (of course).
Even if you finance the purchase and have only had the item installed ready for use for one day – say 30 June – your business is still eligible for the full claim.
Eligible Items — Any capital items costing $20,000 are covered by this provision. There are a few items not deductible, including some horticultural plants and any software developed in-house by a business. Software purchased for business use, for example an account-keeping program, can be claimed.
Under the original temporary accelerated depreciation measures during the global financial crisis, businesses were required to purchase new items of plant and equipment. We anticipate this to be the same under the new temporary measures, as only a purchase of new items of equipment will likely provide the economic stimulus required by the budget.
Stand Alone Or Aggregate — The budget proposes that the accelerated depreciation is based on each item of equipment not an aggregate. This allows you take advantage of this measure for multiple separate items, so long as each item cost less than $20,000. For instance, if you purchased an autoclave for $15,000 and hand pieces for $10,000, your total spend during the financial year may have totalled $25,000, which is more than the threshold. The proposed measures, however, look at each purchase separately. So in this case, as both items were less than the $20,000 threshold, both are eligible for the full accelerated depreciation claim.
What About Items Purchased Before The Budget — These will not be eligible for the accelerated depreciation claim.
What About Stock & Materials — Stock and materials are specifically excluded from the proposed budget measure.
Relevant Timeframes — This increase in threshold is applicable from 12 May 2015 (7:30pm) until 30 June 2017. Therefore, if a purchase was to be made it must be made during this period, and the item must be installed in the business ready for use by midnight 30 June 2017. This is an exciting initiative for small business and likely to stimulate significant growth in this part of the economy. We feel it’s a good win for small businesses in the dental industry and the economy overall. A further update will be provided to ADIA member businesses when the legislation is finalised.
Last year the Government made it easier for small businesses invest by introducing an immediate deductibility of assets that cost less than $20,000.
2016 Budget update – The 2016 Australian Government Budget will go even further and introduce new measures to help small businesses invest in and grow their business.
The small business entity annual turnover threshold will be increased from $2 million to $10 million from 1 July 2016. This will provide over 90,000 additional small businesses with access to tax concessions including the reduced corporate tax rate and the instant asset write-off provisions.
This update was issued on 3 May 2016 and please note that changes in circumstances after the publication of material or information may impact upon its accuracy (including passage of the supporting legislation through the parliament) and also compliance obligations. It is recommended that expert advice be sought before taking action based upon the information presented here.
This advice was commissioned by the Australian Dental Industry Association.
Disclaimer — This article is designed to provide generic information only and should not be viewed as a recommendation to act. Individuals should seek advice from a qualified adviser to ensure their actions are commensurate with their financial needs and requirements. Whilst every effort has been undertaken to ensure accuracy of information at the time of publication, the information contained within the article may have changed prior to and subsequent to the articles publication. This update was issued on 13 May 2015 and please note that changes in circumstances after the publication of material or information may impact upon its accuracy and also change compliance obligations.