Depreciation Deductions for Business From 1st July 2023

Since the 2020 financial year many businesses have been enjoying large tax deductions available under various depreciation tax incentives, including the temporary full expensing rules. After 30 June 2023 these incentives have ended, and a there has been a change to the instant asset write off threshold.

Depreciation Deductions for Business From 1st July 2023

$20,000 immediate asset write off threshold

In the May 2023 budget, the government announced that from 1 July 2023 to 30 June 2024, qualifying small businesses with an aggregated turnover of less than $10 million will be able to write off depreciable assets costing less than $20,000 (GST exclusive) in full. To access the write off, businesses will need to choose to adopt the Simplified Depreciation Rules, including the use of the Small Business General Pool.

The $20,000 limit applies per asset, so multiple assets can be written off under this measure. Note that this announcement has not yet been passed as law.

To qualify for the write off in 2024, assets must be “first held or held ready for use” before 30 June 2024. If an asset has been ordered but has not been delivered and installed or made ready for use by 30 June 2024, if won’t qualify for depreciation until the 2025 financial year.

Assets over $20,000

When using the simplified depreciation rules, assets costing over $20,000 must be placed into a general small business pool, and depreciated at 15% in the first year and 30% in subsequent years.

Adjustments for partial business use

If an asset is to be used only partially for business use, the instant write off amount or amount added to the pool is reduced by the non-business portion.

For example:

  1. A vehicle costing $30,000 is purchased and will be used for business 50% of the time. As the purchase price is greater than $20,000 the asset will be pooled. $15,000 ($30,000 x 50%) will be added to the small business general pool.
  2. A computer costing $3,000 is purchased and will be used for business 50% of the time. $1,500 ($3,000 x 50%) will be written off immediately, as the purchase price is less than $20,000.

Choice of depreciation rules

If a small business (<$10 million turnover) chooses not to use the simplified depreciation rules, each new asset will be depreciated individually at general depreciation rates based on the effective life of the asset. Assets costing less than $1,000 can be added to a Low Value Pool and depreciated at 18.75% in the first year and 37.5% in years thereafter.

Beyond 30 June 2024

There has been no indication if the $20,000 instant asset write off threshold will remain beyond 30 June 2024. If there is no extension to the $20,000 threshold, the write off threshold would revert to $1,000 per asset.

How can we help?

Please note that this is a simplified summary of the depreciation rules. If you would like help or advice with applying the depreciation rules to your business, please don’t hesitate to contact our office.