TALKING TAX | Small business rules for claiming equipment

SMALL BUSINESS: If you would like to use the $20,000 tax threshold for the 2018 financial year, the combined income in your business group must be below $10 million. Photo: shutterstock.
SMALL BUSINESS: If you would like to use the $20,000 tax threshold for the 2018 financial year, the combined income in your business group must be below $10 million. Photo: shutterstock.

I’m a new owner of a small business.

I’m looking to buy some new equipment, probably about $12,000 worth.

I have heard that I can claim the full cost as a tax deduction, is this true?

Yes, that is correct; for the 2018 financial year, small businesses can claim a tax deduction for the full cost of each piece of equipment that costs under $20,000 (excluding GST), if the equipment is used or held ready for use in the business.

What is a “small business”?

A “small business” for the purpose of determining eligibility to use the $20,000 threshold for the 2018 financial year, is a business which, combined with the income generated by the other related entities in your business’ group, generates income below $10 million.

So, if the income generated is less than this amount, you will be able to include a full tax deduction for any new equipment that is under $20,000.

However, if your equipment costs $20,000 or more, then you would only be able to claim a portion of the cost as a tax deduction, being the annual depreciation of the asset.

For example, if the equipment was added to your small business general asset pool, then you would claim 15 per cent of the cost in the first year and 30pc for each year thereafter until the value of the pool is nil.

Future developments

It was also announced in the 2018-2019 Federal Budget that small businesses will be able to continue to claim a full tax deduction for assets which cost up to $20,000 for another 12 months (until June 30 next year). Provided this change becomes law, you will be able to use the $20,000 immediate deduction for the 2019 financial year as well.

This threshold will reduce to $1,000 for assets then purchased from July 1, 2019 onwards.

You should consult your business adviser or accountant before claiming a full tax deduction for any equipment purchased to make sure you satisfy all of the requirements.

If you would like more information on this topic, or if you have another tax-related question, please email tax.albury@crowehorwath.com.au.

Any information in this article has been prepared without taking into account your personal circumstances.

You should seek professional advice before acting on any material.

While reasonable care is taken in the preparation of this information to the extent allowed by legislation, Crowe Horwath (Aust) Pty Ltd ABN 84 006 466 351, accepts no liability whatsoever for reliance on it.