This month is your last chance to secure some attractive business deductions. Your decisions pre and post 1 January could mean thousands of dollars!
Early last month the Government introduced draft legislation repealing the Minerals Resource Rent Tax (MRRT) – or mining tax as most of us know it. While the repeal of the mining tax is not likely to have a direct application to many small business and individual taxpayers, the Government also plans to abolish a number of other tax measures that will have a broader impact. Two of those measures relate to the deductibility of depreciating business assets and motor vehicles.
The changes are currently in the Senate and are not certain until they are passed, but there appears to be limited opposition to the repeal.
Currently, small business entities (generally entities with a turnover of less than $2m) can claim an immediate deduction for depreciating assets costing less than $6,500. For example, if a SBE buys a $4,000 computer, the business can claim an immediate deduction in the same financial year for the full $4,000. From 1 January 2014 however, this threshold will drop to $1,000. So, if there are assets you need for your business and cash flow allows, you have until 31 December 2013 to buy the assets you need and use them or have them installed ready for use.
Thinking of buying a motor vehicle for your small business? Special rules apply to depreciating assets that are motor vehicles. A small business entity can deduct the first $5,000 of the cost of a motor vehicle, plus 15 per cent of any remaining cost, in the income year that it is first used or installed ready for use. The motor vehicle is then added to the small business entity’s general small business pool, and depreciated as part of the pool at a rate of 30 per cent in subsequent income years.
From 1 January 2014, the $5,000 immediate deduction for motor vehicles purchased by small business entities will be removed. Once again, if you are thinking of buying a motor vehicle for your business, you have until 31 December 2013 if you want to claim the $5,000 immediate deduction. Remember, the car must be installed and ready for use before 31 December (i.e. delivered to the purchaser) to be eligible for the $5,000 deduction.
It is expected that the proposed amendments will have retrospective application if the bill to repeal the MRRT and related tax measures is passed in the new year. Without guidance to the contrary, eligible businesses should consider bringing forward capital purchases before the new year if they wish to maximise their deductions for the 2013-14 income year.
Knowledge Shop October 2013
Parliament of Australia: Parliamentary Business/Bills Legislation