In response to a number of inquiries made by our clients recently about the 2015 Budget, and in particular, the accelerated depreciation for assets under $20,000 (net of GST), we have provided a brief overview of one of the proposed changes and how this might affect our clients.
ACCELERATED DEPRECIATION
"All small businesses will get an immediate tax deduction for any individual assets they buy costing less than $20,000. (Currently, the threshold sits at $1,000).
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. These arrangements start from Budget night and continue until the end of June 2017."
In other words, if you purchased a truck for $19,000 (net of GST) on 20th June 2015, you would be able to claim depreciation of $19,000 in total for that truck, in the 2015 financial year. If you run your business through a company, the tax you would save would be $5,700 (at the current company tax rate of 30%), i.e. 30% x $19,000.
Please note, the accelerated depreciation does not mean that you will save or get a refund of $19,000.
It is also important to note, that even without accelerated depreciation, your overall tax saving would still be the same ($5,700) but it would be spread out over the useful life of the truck.
The purpose of the accelerated depreciation is to help businesses with their cash flow NOW, so they can use that cash in the business, rather than benefit from the depreciation over a number of years.
Also, please note that the asset does not have to be purchased as 'new'. For example, you could buy a used car from a dealer or private seller and still be able to utilise the accelerated depreciation.
More information about the Accelerated depreciation can be found here.