Act now to secure these business deductions

Small businesses may want to act now and bring forward their capital purchases if they still wish to utilise the instant asset write-off of $6,500 or the $5,000 motor vehicle write-off in 2013-14.

The details of the government’s repeal of the Minerals Resource Rent Tax (MRRT) make it clear that some small business tax concessions put in place by the former government are to be wound back if the MRRT repeal is passed (and at an even earlier date than the MRRT itself, if the legislation passes as the government intends).

If successfully legislated, repeal of the small business capital allowance concessions will apply from January 1, 2014 – six months earlier than the proposed repeal of the MRRT, which is scheduled for July 1, 2014. Businesses thinking of acquiring a depreciating asset costing less than $6,500 or a motor vehicle may want to do so before the proposed January 1 date to take advantage of these concessions while they still exist.

Until December 31, 2013, the capital allowance concessions available to small businesses are as follows:

  • an immediate tax deduction available for business plant and equipment purchased with a cost of less than $6,500, and
  • a small business that purchases a motor vehicle for business use is entitled to an immediate deduction of the first $5,000 value of the motor vehicle plus 15% of any additional value.

The remaining value is allocated to the small business general pool with a rate of 30% to be claimed in subsequent income years. These concessions are only available to businesses that have a small business pool.

After January 1, legislation amendments may:

  • reduce the $6,500 threshold to the previous amount of $1,000 so that assets exceeding the $1,000 threshold will instead be allocated to a special small business general pool for depreciation claims, and
  • repeal the special rule for motor vehicles so they will be depreciated by small businesses in the same manner as other depreciable assets.

It is expected that the proposed amendments will have retrospective application if the bill to repeal the MRRT and related 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.

Keep in mind that the mere execution of a contract to acquire an item would not be deemed sufficient under taxation law as a start date. They must be “first used” or “installed ready for use” before January 1, 2014, to be subject to the concessional treatment.

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