Accelerated Depreciation

By on August 16, 2016

MILES BEAMISH, Senior Business Finance Broker from Finlease reports on the hidden gold in the 2016 budget for companies with a turnover of up to $10million.

Although much publicity has surrounded the reclassification of small business which now extends to companies with a turnover of up to $10million and the ability of those businesses to claim 100% depreciation on assets purchased of less than $20,000, these are “small bikkies” compared to what is available under the accelerated depreciation allowances which now become available to them under The Small Business Depreciation Pooling Provisions (Provided they can get it through the Senate as Bill Shorten is threatening to block this component of the reform).

Owners of businesses in such capital intensive industries as transport, civil and related fields should take heed of this depreciation bonanza which has just become available to them (effective July 1, 2016).

Under the Small Business Depreciation Pooling Provisions, company owners can actively elect to place all of their assets in a pool for depreciation purposes and claim an overall depreciation rate of 30% diminishing value (DV).

This was previously a benefit only afforded to companies with a turnover of less than $2 million but has now been opened up to much larger organisations.Depreciation Comparison Chart

The best way to explain this is via the following example:

Chatswood Cranes runs a fleet of 10 cranes, has a turnover of $5 million p/a, a profit of $1 million p/a and resultant tax bill of $300,000 p/a.

The written down value of their cranes is $4 million and they have been historically depreciating their cranes at 7.5% DV ($300,000) p/a. which was expensed prior to the $1million profit.

Effective July 1, 2016, Chatswood Cranes (who are now reclassified as a Small Business) placed all of their cranes into the new accelerated depreciation pool prior to year end and are now claiming 30% DV depreciation on the $4million fleet.

The depreciation in the following year will climb from $300,000 (7.5% DV) to $1.2mil (30% DV) with the extra $900,000 reducing their taxable profit from $1 million to $100,000 resulting in the tax bill reducing from $300,000 to $30,000.

It is important to remember the diminishing value methodology of this accelerated depreciation, which on the above figures would show the following profile for future years:-

Although the example has been used for a crane company, this could easily be applied to companies who require large amounts of expensive equipment such as earthmoving, transport or concrete pumping companies (just to name a few).

If you are a company involved in such capital intensive industries, who historically incur significant tax liabilities or expect to do so, it is advisable to speak with a specialist in this area or your accountants as a matter of absolute priority to investigate this significant opportunity.

As the late Kerry Packer most famously said the 1991 Senate Enquiry “if anyone in this country doesn’t (legitimately) minimise their tax, they want their heads read”.

From 1 July this year, the small business tax rate will be lowered to 27.5 per cent and the turnover threshold for small businesses able to access it will be increased from $2 million to $10 million.

This means businesses with a turnover of less than $10 million will also be able to access other tax incentives, including the small business depreciation pooling provisions, simplified trading stock rules, and Pay-As-You-Go Instalments payments option.

From the Treasurer’s Budget Speech:

Miles BeamishFor further information contact:

Miles Beamish – Senior Business & Equipment Finance Broker
M. 0410 774 506
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