Government reverses the increase in depreciation threshold for small business

Changes made last year to the immediate write off threshold for small business have now been reversed back from $6,500 immediate write off to only $1,000. Assets exceeding $1,000 will be allocated to a general small business pool for depreciation claims.

Changes to the way small businesses are able to claim depreciation had been made from the 2012-2013 financial year.

The small business instant asset write-off threshold had increased from $1,000 to $6,500. This new rule allowed businesses to write-off any depreciating asset (excluding motor vehicles) with a total cost less than $6,500. Previously, the cost threshold was $1,000; anything over this cost could not be claimed as an instant deduction.

Changes had also been made to the way businesses apply pooling to their assets for depreciation purposes. Previously, two pools were available for small businesses to use when depreciating assets; the general small business pool for assets with an effective life of less than twenty-five years, and the long-life small business pool for assets with an effective life of twenty-five years or more. From the 2012-2013 financial year, it was intended that these pools will be consolidated and items which apply to these pools will now be written off at one rate.

Small businesses were able to claim an initial deduction of up to $5,000 for motor vehicles acquired in the 2012/13 and subsequent financial years.  Where a vehicle is used exclusively for business and has not been written off immediately under the instant asset write-off, the cost of the motor vehicle is added to the small business pool and the deduction is made up of $5,000 plus 15% of the vehicle's remaining value.

In order to qualify for these concessions, businesses must fall under the Australian Taxation Office (ATO) definition of a small business. The ATO consider a small business to be an individual, partnership, trust or company with an aggregated turnover of less than two million dollars. An aggregated turnover is the annual turnover of any business that an individual is connected or associated with.

Now, with the reversal of this decision by government, the previous rules apply as of 1 January 2014.