Businesses Buying Plant and Equipment

27th Jun 2012 | Category: Money Matters

You may be considering buying plant and equipment before the end of the financial year in order to benefit from a tax deduction. In the case of rental properties and businesses too big to qualify for the small business concessions the equipment is depreciated so you will only qualify for one month’s depreciation which will be an insignificant portion of the cost.

Of particular importance this year is the fact that delaying your purchase until next financial year will mean you qualify for the increased immediate write off threshold. These new concessions only apply to small business and do not apply to rental properties. Here is a comparison, all amounts are net of GST if you qualify for input credits:

2011/2012

Immediate tax deduction if it cost less than $1,000. If the life expectancy is less than 25 years but the cost is over $1,000 then it is depreciated at 15% in the first year then 30% diminishing rate, in a low value pool.

2012/2013

Immediate tax deduction if it cost less than $6,500, above that amount it is placed in a pool to be depreciated at 15% in the first year (no matter which month purchased) then 30% diminishing rate after that. Of course it is only the business use portion of an asset that can be written off or added to the pool so for example if you were to purchase a car for $6,500 that was going to be used half for business and half for private use you would only be able to write off $3,250.

Further, later improvements to the equipment have to be added to its original price and other improvements to determine whether they qualify for immediate write off or the pool. So if a tow bar worth $500 was later added to the car the tow bar would have to be depreciated in the pool because it took the whole asset over the $6,500 threshold even though the car still qualified for immediate write off.

There is no grouping provisions for identical items or those forming part of a set. Which effectively means a $10,000 set of spanners could qualify as under the $6,500 threshold. Once the pool balance drops below $6,500 it can be written off.

There is a further concession that applies to the purchase of motor vehicles. If they cost over $6,500 the first $5,000 can be immediately written off. Motor vehicles include cars, 4wds, trucks, vans, utes, motorbikes and scooters. The vehicle can be second hand. Again the price of the vehicle may need to be apportioned between business and private use, if the business use portion is $5,000 or less then it can be completely written off but when it is sold the business portion of the sale proceeds must be added back to the pool. These concessions will not work for leased equipment.

Julia Hartman is a consulting accountant and founder of Bantacs Accountants Pty Ltd (www.bantacs.com.au). She is a member of both the Australian Society of CPAs and the Institute of Chartered Accountant. Julia writes for Australian Property Investor Magazine and is co-author of the best seller “How to Save Tax on your investment property”.