Depreciating assets: benefits for small business

Smart practice

Friday 22 July 2016

Get the most from your business vehicle and equipment with the small business tax break

Whether you're setting up a new business or growing an existing one, it's important to get the foundations right. The first step in building a successful business is ensuring you have the right tools and equipment to support your operations. 

The large up-front investment required when upgrading or replacing your depreciable business assets can cause challenges in managing your cash flow, which is why it’s important to understand how your business could benefit from the $20,000 small business tax break for vehicle, plant and equipment purchases.

In 2015, the Australian government announced the expansion of the accelerated depreciation measures to temporarily increase the threshold for eligible assets from less than $1,000 to less than $20,000.  In the 2016 Federal Budget handed down on 3 May 2016, it has been proposed that the definition of a small business entity be expanded.

This means that small to medium businesses may be eligible to claim an immediate tax deduction for certain assets, including vehicles, plant and equipment costing less than $20,000. If your business has plans for expansion or it’s time to upgrade your existing assets, find out how you may be eligible for a 100% tax deduction.

How do I know if I'm eligible?

Currently, you may be eligible for the small business stimulus package if you meet the following requirements:

  • You have an ABN
  • Your business is earning an annual turnover of less than $2 million a year
  • Provided the relevant legislation receives Royal Assent, the annual turnover threshold will increase to less than $10 million a year.

What types of cars can I purchase under the accelerated depreciation measures?

Both new and used vehicles used for commercial purposes costing less than $20,000 should be eligible for the accelerated depreciation tax break, provided the assets satisfy all requirements for the immediate deduction.

Does this apply to vehicles under finance?

Yes. New and used vehicles purchased for commercial use under finance (where you are taken to ‘hold’ the asset for income tax purposes) should be eligible for tax deductions, provided the asset satisfies all requirements for the immediate deduction.

What if I'm looking for a vehicle over $20,000?

The immediate tax deductions only applies to vehicles costing less than $20,000 (excluding GST if you are registered for GST). However, if you are planning to purchase a vehicle for your business over this amount, expenses may still be deducted via;

  • Cents per Kilometre
    The mileage rate changes every year, though you may be able to claim 66c for every kilometre your car is driven for commercial and businesses purposes, capped at a maximum of 5,000 business kilometres per car.
  • Depreciation
    Over time the vehicle you purchase will depreciate in value, like any other vehicle. So the benefit of having a business car means that you can claim some of the loss in value. Assets that cost $20,000 or more (which cannot be immediately deducted under other provisions) may be deductible over time using the general small business pool.
  • Business operating costs
    If your vehicle is used for business and commercial purposes, then you may be able to claim the cost of petrol, servicing or repairs, insurance and even interest on your car loan.
  • Leasing costs
    If your business is leasing your vehicle, the lease payments may be deductible to your business for income tax purposes.

What about other plant and equipment for my small business?

As part of the small business stimulus initiative, eligible small businesses may be able to claim an immediate tax deduction for plant and equipment purchases costing less than $20,000 (excluding GST if you are registered for GST), provided the assets satisfy all requirements for the immediate deduction. Similar to the rules for motor vehicles, this applies to both new and used plant and equipment purchases. Plant and equipment under finance also may be eligible for the tax break where the business is taken to ‘hold’ the asset for income tax purposes.

How do I get started?

Macquarie Leasing offers a range of financial options that can be structured to suit your business, so that you can purchase the assets you need, when you need them. Speak to an asset finance specialist today on 1800 100 152.

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This material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 ("Macquarie"). Macquarie does not give, nor does it purport to give, any taxation advice (including any tax (financial) advice service). This information is for general discussion purposes only and is not an expression of opinion or recommendation, and does not constitute financial, accounting, taxation, general or personal advice and should not be relied upon as such. This information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.