Pending legislation in Federal Parliament proposes a significant change to the instant asset write-off for small business entities. The deduction limit will be increased from $1,000 to $20,000 for depreciating assets acquired after 1 July 2023. This update aligns with the Federal Government’s announcement in the May 2023 Budget and full details are available on the ATO website.
Important Timing
Under the proposed simplified depreciation rules, small businesses can immediately deduct depreciating assets costing less than $20,000 (excluding GST) if the asset is first used or ready for use before 30 June 2024. However, assets used or installed for a taxable purpose after 1 July 2024 will revert to the $1,000 threshold.
Crucially, this $20,000 threshold applies on a per-asset basis, allowing small businesses to instantly write off multiple assets. To qualify for this deduction, entities must meet the criteria of a ‘small business entity’ and operate with an aggregate turnover of less than $10 million. Additionally, connected entities to a small business taxpayer may also be considered for eligibility under the $20,000 instant asset write-off.
Tips for Assets Allocation
For depreciating assets that cost $20,000 or more, small business entities allocate them to a general small business pool. These assets can be deducted at rates of 15% in the year of allocation and 30% in subsequent years.
If the balance of a small business entity’s general small business pool is under $20,000 by the end of the income year ending 30 June 2024, the entity can claim a deduction for the entire pool balance.
It’s crucial for small businesses to assess their asset acquisitions in line with these proposed changes. Leveraging the increased write-off threshold effectively and optimizing tax planning are essential considerations. If you have any questions on whether your business can benefit from this policy, please contact us.
Pending legislation in Federal Parliament proposes a significant change to the instant asset write-off for small business entities. The deduction limit will be increased from $1,000 to $20,000 for depreciating assets acquired after 1 July 2023. This update aligns with the Federal Government’s announcement in the May 2023 Budget and full details are available on the ATO website.
Important Timing
Under the proposed simplified depreciation rules, small businesses can immediately deduct depreciating assets costing less than $20,000 (excluding GST) if the asset is first used or ready for use before 30 June 2024. However, assets used or installed for a taxable purpose after 1 July 2024 will revert to the $1,000 threshold.
Crucially, this $20,000 threshold applies on a per-asset basis, allowing small businesses to instantly write off multiple assets. To qualify for this deduction, entities must meet the criteria of a ‘small business entity’ and operate with an aggregate turnover of less than $10 million. Additionally, connected entities to a small business taxpayer may also be considered for eligibility under the $20,000 instant asset write-off.
Tips for Assets Allocation
For depreciating assets that cost $20,000 or more, small business entities allocate them to a general small business pool. These assets can be deducted at rates of 15% in the year of allocation and 30% in subsequent years.
If the balance of a small business entity’s general small business pool is under $20,000 by the end of the income year ending 30 June 2024, the entity can claim a deduction for the entire pool balance.
It’s crucial for small businesses to assess their asset acquisitions in line with these proposed changes. Leveraging the increased write-off threshold effectively and optimizing tax planning are essential considerations. If you have any questions on whether your business can benefit from this policy, please contact us.
