The shrinking small business instant asset write-off

With the abolition of the Minerals Resource Rent Tax (MRRT) came a raft of associated measures including yet another change to the instant asset write-off threshold for small businesses. The threshold has been reduced from $6,500 to $1,000. So when does this change become effective? The start of the next financial year? Not so. Incredibly, the change is effective from 1 January 2014. That’s right – not only has the change been backdated but to a start date half way through the 2014 financial year!

This means that small businesses that acquired depreciating assets from 1 January 2014 costing less than $6,500 on the understanding that they could write off the entire cost immediately will only be able to do so if the asset cost less than $1,000. For assets with a cost above $1,000, but below $6,500, these now have to be depreciated in the general small business pool at a rate of 15% in the first year and 30% thereafter.

In the same raft of changes, small businesses are also no longer able to claim an immediate deduction of $5,000 on the cost of motor vehicles. This change is also effective from 1 January 2014. Motor vehicles will now be required to be depreciated using the same rules as all other depreciating assets.

Small business taxpayers that have lodged 2014 income tax returns and have completely written off assets costing less than $6,500 that were purchased after 1 January 2014 or have claimed an immediate deduction of $5,000 on motor vehicles that have been purchased since 1 January 2014, will now be required to seek amendments.

The ATO has advised that no shortfall penalties will apply if taxpayers seek to amend their return within a reasonable time and the shortfall interest charge (SIC) will be remitted to nil.

Given that the amending legislation was delayed due to prolonged debate in the Senate, and were only passed in September 2014, you would’ve thought someone could have suggested changing the effective date to 1 July 2014. So much for the government’s promise to reduce red tape!

If you have any questions, or wish to seek advice on matters referred to in the article, we can be contacted on (03) 8662 3200 or consult@webbmartinconsulting.com.au. This article was prepared by Richard Wilkins.

This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. Webb Martin Consulting Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.

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