Small Business Depreciation

In the May 2015 budget, the government announced they were increasing the instant asset write off from $1,000 to $20,000. This means you can get an immediate deduction for assets purchased costing less than $20,000 provided you meet the definition of a Small Business Entity.

This is set to expire on the 30th June 2017 meaning you only have a matter of months to take advantage of this opportunity. If you are looking at purchasing assets costing less than $20,000 within the next year you may be best to look at doing so before the 30th June 2017.

So how does this work?

If you purchase an asset for $10,000, you will get a deduction of $10,000 in your business tax returns. Let’s take a company for example. If you take advantage of the small business depreciation, it will give you a tax deduction of $2,750 (27.5% – Company Tax Rate for small business). If you were to purchase the asset after the 30th June 2017, you would get a tax deduction of $1,500 in year 1 ($412.50 tax savings) then tax savings of $701, $491, $343, $240 in future years.

Overall it works out to be the same tax deduction when all the years add up, however if you purchase the asset before the 30th June 2017 the tax savings will come in 1 year, rather than being spread over about 8 years.

With a budget being announced in the coming weeks, things may change but we will keep you updated if they do.


Article Written by Paul Wineberg

Paul is a member of the Institute of Chartered Accountants

and a Director of South East Accounting.