When you buy a capital item which is used within your business or employment you are allowed to claim a tax deduction for the cost of that item. This could be an outright immediate deduction or claimed over several years.
The general rules allow the cost of a capital item to be claimed over its effective life. The Tax Office has made available a table showing the effective life of most capital items.
Small business with turnover under $10 million can use a simpler method of depreciation which allows an immediate deduction for items under a threshold and a general small business pool for other assets. This threshold had been set at $30,000 for this year but with the recent Economic Response to Coronavirus it is proposed to increase this to $150,000 for the period March 12 to June 30, 2020. This will apply to new and second hand items. They are also proposing an increase in the turnover limit to $500 million to allow more business to make this claim.
An additional incentive they are proposing is to allow a deduction for 50 per cent of the cost of a new item in the year the item is installed with the balance of the cost being depreciated under normal rules. This applies to items used or installed by June 30, 2021. These changes have not as yet passed parliament.
Timing for this is crucial. A deduction is allowed in the period that the item is first bought and used, or installed ready for use. If you purchased a tractor in February 2020 for $100,000 but it was not delivered until April 2020 you could claim the full cost as a deduction as it was delivered after March 12 and the proposed new rule would apply.
The same rule would apply to if you were to order that tractor now but the dealer is unable to deliver until after June 2020; you would not be eligible for the immediate write off in the 2019/20 tax year.
The cost of the item would include the amount paid for it and any additional amounts transporting it and getting it installed ready for use. Also claim is limited to the business use of the item.
- Helen Warnock is a partner at Kennas Chartered Accountants Rockhampton. This article offers general information only. You should consult your personal adviser to seek advice relevant to your personal circumstances before taking action.
