Taxpayers Australia is urging small business owners to bring forward capital purchases before January 1, 2014 to maximise deductions following the government’s repeal of the Minerals Resources Rent Tax and the concessions that were to be funded by it.
Taxpayers Australia, a not-for-profit organisation, says the fact that the repeal of small business capital allowance concessions will apply from January 1, 2014 (six months earlier than the proposed repeal of the MRRT) has slipped under the radar.
The capital allowance concessions available to small businesses until December 31, 2013 are:
- An immediate tax deduction available for business plant and equipment purchased with a cost of less than $6,500; and
- A small business that purchases a motor vehicle for business use is entitled to an immediate deduction of the first $5,000 value of the motor vehicle plus 15 per cent of any additional value.
The remaining value is allocated to the small business general pool with a rate of 30 per cent to be claimed in subsequent income years. However, when the proposed amendments are introduced, they will:
- Reduce the $6,500 threshold to the previous amount of $1,000 so that assets exceeding the $1,000 threshold will instead be allocated to a special small business general pool for depreciation claims; and
- Repeal the special rule for motor vehicles so that motor vehicles will be depreciated by small businesses in the same manner as other depreciable assets.
Taxpayers Australia’s Head of Taxation Products and Services, Mark Chapman, said small business owners thinking of acquiring a depreciating asset costing less than $6,500, or a motor vehicle, to do so before January 1, 2014.
“Eligible small businesses should make any planned capital expenditure in line with their Christmas shopping, and not the stocktake sales,” Chapman said.
Chapman said it’s important to keep in mind that the instant asset write-off and special deduction for motor vehicles can only be claimed if the relevant asset is “first used” or is “installed ready for use” before January 1, 2014. The mere execution of a contract to acquire an item of plant or equipment would not be deemed sufficient under taxation law for there to be a deduction.
“An increased deduction will only be available if the small business takes possession of the asset and uses it in business before the end of the calendar year,” Chapman said. “At the very least, the asset must be ‘installed and ready for use’ even though it may be intended by the business that the asset be used in the New Year. If you’re planning to buy a car, you should take one from the lot. Waiting for the car to be delivered in 2014 means you will lose out on accelerated deductions.”
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