There is an under-used gem hidden within the small business simplified depreciation rules that in some circumstances can widen the opportunity to access this valuable deduction.
Everyone assumes that the $20,000 instant asset write-off is exclusive to eligible small businesses. But it is possible, under certain conditions, for individuals such as employees to be able to claim the write-off for depreciating assets used in producing non-business assessable income – such as employment or investment income. The questions and answers below tease out the situations where this may be applicable .Everyone assumes that the $20,000 instant asset write-off is exclusive to eligible small businesses.
lsn ‘t it only small businesses that are eligible for the $20,000 write-off?
Yes, that’s right. The instant asset write-off, which is part of the simplified depreciation regime, is only available to a taxpayer that is a “small business entity”.
A taxpayer is a small business entity if both of the following are satisfied:
- the taxpayer carries on a business in the current year, and
- the taxpayer’s aggregated turnover was less than $2 million for the previous year, or is likely to be less than $2 million for the current
The legislation leaves no doubt that only a small business can utilise the write-off.
So how can an employee claim the deduction?
An employee taxpayer is eligible for the write-off as long as they are also a small business entity.
In other words, the individual’s status as a small business entity allows them to use the $20.000 write-off. The fact that the taxpayer is also an employee is not material.
Isn’t the $20,000 write-off only for assets used in the small business?
Actually, no. The law is more generous with regards to this.
The small business can deduct the cost of the asset for the income year in which it starts to use the asset, or has it installed ready to use, for a taxable purpose.
The law does not restrict the concept of a “taxable purpose” only to purposes related to the business that is carried on. In fact, the expression “taxable purpose” is defined in the capital allowances rules as a very broadly stated purpose – the purpose of producing assessable income.
Income from employment (salaries and wages , commissions, bonuses, allowances and so on) is generally assessable income. For that matter, most passive investment income (dividends, net rent, interest, net capital gains) is also assessable income.
Therefore, the cost of a depreciating asset can be immediately deducted in the year incurred if:
- the taxpayer is a small business entity
- the first element of the cost base (that is, the amount you paid for the asset) is less than $20,000, and
- the asset is held for the purpose of producing any type of assessable income
– whether the income is business, employment or investment income.
Contact Taxwise Australia on 08 9248 8124 if you would like any assistance in this matter.
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