Tax rules for depreciating assets

Key messages

• Understanding rules around asset depreciation could help farmers with tax planning this financial year

• Farmers could be eligible to deduct the full cost of depreciating assets costing less than $20,000 for multiple assets

• Applies to assets first used or installed ready for use between 1 July 2023 and 30 June 2024

Small businesses with an aggregated turnover of less than $10 million will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024.

 “Immediately deductible” means a tax deduction for the asset can be claimed in the same income year that the asset was purchased and used (or installed ready for use). 

 If the business is registered for GST, the cost of the asset needs to be less than $20,000 after subtracting the GST credits that can be claimed for the asset.  If the business is not registered for GST, it is $20,000 including GST.

The write-off applies per asset, so a small business can deduct the cost of multiple assets.

 The rules only apply to assets that fall within the scope of the depreciation provisions. Expenditure on capital improvements to buildings that falls within the scope of the capital works rules is not expected to qualify.

 Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will continue to be suspended until 30 June 2024. This will be particularly relevant to small business entities that chose to leave the simplified depreciation system in order to opt-out of applying the temporary full expensing rules to one or more specific assets.

This announcement effectively confirms that the temporary full expensing rules, which have provided an immediate deduction for the full cost of assets acquired from 6 October 2020, come to an end on 30 June 2023.

This article was provided by Belmores Chartered Accountants. For more information visit, belmores.com.au