Tax concessions for Small Business Entities & Primary Producers
There are some very attractive tax concessions for Small Business Entities (SBEs) at present. Some of these concessions will not be available after 30 June 2018 while others will continue after that date. Some are for both primary producers and non-primary producers. Others are for primary producers only. In this blog I will try to set out which concessions are for all SBEs; which are for primary producers only; which are likely to disappear after 30 June 2018 and which will continue at the pleasure of the Australian Taxation Office and the Australian Government.
These concessions are available only to SBEs. In brief, an SBE is a business which has a turnover less than $10 million (for 2016 and prior years the threshold was $2 million).
$20,000 Instant Asset Write-off
All SBEs (primary producers and non-primary producers) are entitled to an immediate deduction for the business use portion of a new or used depreciating asset costing less than $20,000 (excluding GST) first acquired on or after 7.30 pm on 12 May 2015 and first used or installed ready for use by 30 June 2018. This concession is known as the $20,000 instant asset write-off. Unless extended it will end on 30 June 2018.
There are some conditions. There are always conditions. One of these conditions is that, if you take advantage of the instant asset write-off, you must pool all your other assets (with very few exceptions). Pooling means totaling the written down values of all depreciable assets and claiming depreciation on the total at 30% (15% in the year you acquire the asset). If you want to claim the instant asset write-off you must either be in a pool or you must establish a pool in the year that you first claim the instant asset write-off.
All SBE taxpayers (including primary producers) can also claim an immediate deduction for prepaid business expenses in the year in which they are incurred if the eligible service period is 12 months or less and ends in the following income year. This concession is often used for prepayment of leases. Primary producers might use it for prepayment of agistment (for example). This concession presently has no end date.
There is also an immediate deduction available for SBEs for certain start-up costs. This concession has no end date at present.
The concessions above are available to every SBE. Those following are specifically for SBE primary producers.
Immediate Deduction for Primary Producers for Water and Fencing Assets
If you are a primary producer you can claim an immediate deduction for the cost of water facilities (dams, tanks, bores) and for fencing assets if the expenditure was incurred from 7.30 pm on 12 May 2015. There is no upper limit to the amount of expenditure that can be deducted. Previously, water facilities were claimed over three years and fencing was claimed under the general depreciation rules. The fencing concession might be particularly relevant at present with so much wild dog fencing under way. Who would have dreamed a few years ago that you could pay, say, $500,000 for new fencing and claim the total cost in the same year. These concessions presently have no end date. Please note that stockyards, pens and portable fences are excluded from this concession.
If you completed your fencing before this major concession it is not the end of the world. You cannot get the immediate write-off but you can still claim the balance of your costs (the written down value) in a pool at 30%, which is far better than the general depreciation rate.
Accelerated Depreciation for Woolsheds, Shearing Sheds and other Farm Buildings
Structural improvements on land used for agricultural or pastoral operations (for example woolsheds or shearing sheds) have traditionally been classified as capital structures and written off at 2.5% over 40 years). Now these improvements qualify as plant. This means that depreciation can be claimed under the SBE rules if you qualify as a small business entity. The claim is 15% in the first year and 30% in subsequent years.
If your primary production business was not previously eligible for depreciation pooling because your turnover exceeded the $2 million threshold (but you are now eligible because you are under the $10 million threshold) it might be time to do the sums to determine whether pooling is to your advantage. Remember that if you do put all your depreciable assets into a pool, you can still claim all the prior year assets at 30%, not 15%, because it is not the date of adding them to a pool that matters, it is the date they were first used.
This concession on structural improvements currently has no end date.
Fodder Storage Sheds
Fodder storage sheds can be claimed over three years in equal proportions. This concession has no end date at present.
There is the usual word of warning. To make this blog readable I have condensed dozens of pages of text to this summary. There is much that I have omitted. Therefore do not rely solely on the information above.