Tax Tips and Trick # 2 – Small Business Depreciation

Small businesses can use the simplified depreciation rules to work out deductions for most depreciating assets.   

Small business means ‘small business entity’, which is an individual, partnership, trust or company with aggregated turnover of less than $2 million.

From the 2012-13 income year the upfront tax advantage of the simplified depreciation rules has become even greater for small business.

From the 2012–13 income year in general, you can:

• Immediately write off most depreciating assets costing less than $6,500 each
• Pool most other depreciating assets (irrespective of their effective life),in the general small business pool and depreciate at the rate of 30%
• Depreciate most newly acquired assets at 15% in the first year, regardless of when they were acquired during that year
• Claim an accelerated initial deduction up to $5,000 for motor vehicles costing greater than $6,500.  The cost of the motor vehicle is added to the general pool but unlike other assets, the deduction is $5,000 plus 15% of the remaining amount.

The only trap to watch with the accelerated depreciation rules is that upon subsequent sale of an asset the closing pool balance, that is the cost of the assets less the amount already depreciated will in some cases be less than the sale price of an asset.  This may result in an assessable gain.