Small Business Depreciation to change from 1 January 2014
Traditionally, many small businesses do their tax planning as 30 June approaches. However, this year depreciation benefits may be maximised if a small business entity takes action by 31 December 2013.
The reason that small business entities may need to act now is due to the release of Exposure Draft legislation to repeal parts of the existing small business depreciation rules. This is one of the Government’s measures to remove the mining tax and any associated legislation.
From 1 January 2014, the small business entity depreciation laws are proposed to apply as follows:
- An immediate deduction will be available for assets costing less than $1,000;
- Assets costing $1,000 or more will be allocated to the small business general asset pool; and
- There will be no special depreciation rules for motor vehicles.
In contrast, small business entities currently have access to accelerated rates of depreciation, including:
- An immediate deduction for assets costing less than $6,500; and
- An immediate deduction for the first $5,000 of the cost of a motor vehicle, with the balance of the cost being allocated to the small business general asset pool.
Assets that are first used or installed ready for use prior to 1 January 2014 will continue to attract the existing (favourable) depreciation rates.
Importantly, the purchase of an asset prior to 1 January 2014 will not, on its own, mean that the asset can be depreciated under the existing rules. The relevant issue is whether the asset is used or installed ready for use prior to 1 January 2014.
Action required
It is unclear whether the Government will have the numbers to pass this legislation in the Senate prior to Christmas. However, the intended application date for the new laws is clear. Given this, we are notifying our clients because, in some cases, it may be beneficial for clients to bring forward the acquisition of new assets prior to 1 January 2014 in order to access the existing depreciation rates. To avoid any doubt regarding the point in time at which the assets are first used or installed ready for use, you may consider purchasing assets well in advance of 31 December 2013.
Other changes
In addition to changes to small business depreciation, the Exposure Draft legislation also proposes to:
- Repeal the loss carry-back for companies with effect for the 2014 income year (from 1 July 2013 for most taxpayers);
- Change the period over which the Superannuation Guarantee Charge increases to 12% (to maintain the rate at 9.25% until 30 June 2016); and
-
Repeal the Low Income Superannuation Contribution for financial years starting on or after 1 July 2013.
Should you have any questions or wish to discuss this topic further please call Henry Harding on 02 9972 2642.