Small business tax deduction claims - did you miss these changes? Change 1.

If you are purchasing any assets for your business than you need to be aware of the changes to the depreciation rules. Whilst your Accountant may take care of the depreciation, its important for you to know the basics of the rules as your choice in asset could have significant tax implications.

From July 2012, there were three changes to the simplified depreciation rules for small businesses. The changes allow small businesses to accelarate the depreciation of their business assets. Theses changes affect sole traders, partnerships, companies or trusts that carry on business activity with an aggregated turnover of less than $2 million in the Financial Year.

The three changes you may have missed were:

• Immediate write-off for purchased assets costing less than $6,500
• Accelerated $5,000 deduction for motor vehicles
• Simplified depreciation rate of 30%

1. Immediate write-off for purchase assets costing less than $6,500

Under the simplified depreciation rules small business can now claim an outright deduction (write-off) for most purchased depreciating assets that cost less than $6,500. Small business used to be able to only claim an immediate write-off for assets less than $1,000. These changes now apply for the 2012/2013 income year and onwards.

The asset must obviously be used for a taxable purpose or be installed ready to be used for taxable purpose in order to be written off at the end of the income year.

For example:
Susie's Snack Bar bought a commercial coffee machine on the 1st July 2012 for $5,000. As the coffee machine is is a depreciating asset and costs less than $6,500 the business can claim an immediate $5,000 deeduction for the 2012-13 income year.

This change may have significant tax implications if you are deciding on whether to choose an asset that costs $6,000 or a different brand at $7,000. From a tax depreciation perspective, it may be advantageous for you to choose the $6,000 asset as you will be able to right the whole amount off, whereas the $7,000 asset gets depreciated at 15% the first year and 30% thereafter (this is the 3rd change).

I will explain the second and third change in my next post. If you were not aware of these changes, than I would definitely recommend seeing an Accountant who communicates tax changes to you through newsletters, emails or their blog!

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