New Depreciation Concessions

for Small Business Entities & Primary Producers

(May 2015 Final Legislation)

 

On 27 May 2015, the Tax Laws Amendment (Small Business Measures No. 2) Bill 2015 was introduced into Federal Parliament (refer ParlInfo - Tax Laws Amendment (Small Business Measures No. 2) Bill 2015) to implement concessional depreciation changes for both:

  • Small Business Entities (SBE); and
  • Primary Producers,

with effect from 7:30 pm 12 May 2015 (the time of announcement in the 2015 Federal Budget).

 

IMPORTANT

Key changes to these measure which have arisen since the initial Federal Budget announcement include:

  •  an additional requirement that the SBE depreciation concession can only apply to the cost of a < $20,000 asset if that cost was incurred (e.g. invoiced) on or after 7:30 pm (AEST) on 12 May 2015; and
  • an earlier start date of 7:30 pm on 12 May 2015 for the Primary Producer depreciation concessions.

 

TIP

Primary Producers may choose between applying either the new Subdiv 328-D ITAA 1997 depreciation concession or the new Primary Production concession for any particular asset under existing section 328-175(3) ITAA 1997.

 

PLEASE NOTE

Importantly, this Tax Astute Snapshot provides only a brief overview of the new depreciation concession provisions.  Tax Astute clients should access their Tax Astute Federal Budget Guide and their next training session to review more detailed issues and examples regarding the new concessions.

 

See below for two brief examples which explain the general operation of:

  • the proposed SBE depreciation concession; and
  • the proposed Primary Production depreciation concession.

 

Proposed Depreciation Concessions

 

PROPOSED SBE DEPRECIATION CONCESSION

The following diagram illustrates how the SBE temporary depreciation provisions will apply.

  • If the asset:

-  has its cost incurred (i.e. is invoiced); and/or

-  is first used/installed ready for use,

before 7:30 pm on 12 May 2015 (see A below), then the pre-existing SBE pooling provisions will apply such that the asset:

-  can only be deducted up-front if it costs < $1,000; and

-  will be deducted at a 15% first year rate via the taxpayer’s SBE pool in all other cases.

  • If both of the following apply to the asset from 7:30 pm on 12May 2015 (see B below):

-  first use/installation ready for use from the above date and before 1 July 2017 ; and

-  cost incurred (i.e. invoiced) from the above date,

then the new SBE concession will apply such that the asset:

-  may be deducted up-front if it costs < $20,000; or

-  will otherwise be deducted at a 15% first year rate via the taxpayer’s SBE pool.

During the period shown at B, an SBE depreciation pool balance or element 2 cost base expenditure (e.g. capital improvements) of < $20,000 may also be deducted in full and the usual 5 year ‘lock out’ rule (for taxpayers voluntarily ‘opting out’ of SBE depreciation) will be suspended.

  • If the asset is first used/installed ready for use on or after 1 July 2017 (see C below) then the pre-existing SBE pooling provisions will re-commence such that the asset:

-  can only be deducted up-front if it costs < $1,000; and

-  will be deducted at a 15% first year rate via the taxpayer’s SBE pool in all other cases.

 BVSD 1V

IMPORTANT

  • The legislation confirms that, to access concessional treatment at B above, the asset’s cost must be incurred/invoiced from 7:30 pm 12 May 2015, such that anticipated 2014/15 access to the concession based solely on use/installation for use will not be available (i.e. both invoicing and first use/installation must occur from 7:30 pm on 12 May 2015).
  • Unlike the requirements when the concessional SBE rules commence, if the asset’s cost is incurred/invoiced before 1 July 2017, but first use/installation happens after this date, the temporary SBE concession (at B above) will not apply.

 

PROPOSED PRIMARY PRODUCER DEPRECIATION CONCESSION

While the proposed Primary Producer depreciation concession applies to a much narrower class of taxpayers and assets than the above SBE depreciation concession, it is more concessional in that:

  • it applies on a permanent basis (i.e. it does not cease after 30 June 2017);
  • it is not subject to any dollar value limit (i.e. no < $20,000 cost rule); and
  • it can apply to the assets shown below which are either:
    -  incurred/invoiced; or
    -  first used/installed ready for use,
    from 7:30 pm on 12 May 2015 (unlike the SBE concession which can only arise if both of the above occur from that date).

 

Subject to meeting the timing requirement shown in the diagram below (and other specific eligibility conditions in the legislation) the new Primary Producer depreciation concession in Subdiv 40-F ITAA 1997 will allow:

  • An immediate/up-front deduction in the year expenditure is incurred for both:
    -  expenditure on the construction, manufacture, installation of acquisition of fencing assets which are principally for primary production business use on Australian land (including structural improvements, capital repairs or alterations, additions or extensions to an existing fence) (previously subject to an up to 30 year write-off- see A below); and
    -  expenditure incurred by a primary producer or irrigation water provider on water facility assets which are primarily or principally for the purpose of (or reasonably incidental to) conserving or conveying water (defined in current s 40-520 ITAA 1997 as including bores, windmills, irrigation channels and more) (previously subject to a 3 year write-off - see B below).
  • A deduction over 3 years for expenditure incurred on fodder storage assets which are:
    -  principally for primary production business use on Australian land; and
    -  principally for the purpose of storing fodder (e.g. dried grain, hay and straw and pellets, but also silage, oils and sprouted grains or legumes) (previously subject to a 10 to 50 year write-off - see C below).

 BVSD 1W

IMPORTANT

  • The above Primary Producer depreciation changes were originally announced in the Federal Budget as applying from 1 July 2016, with the earlier 12 May 2015 start date only announced on 27 May 2015 (see Depreciation for farmers brought forward | The Hon Joe Hockey MP).
  • There are some exclusions from eligibility for the above concessions, including where previous deductions have been claimed by any entity for the same depreciating asset in previous years under Subdiv 40-F ITAA 1997.  Note that some capital repairs/improvements will be deemed separate assets for purposes of this rule.
  • Importantly, stockyard pen and portable fences will be excluded from the above fencing asset concession.

 

 

 
 

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