Full expensing of the simplified general business pool
Australian small businesses entities (SBEs) have access to a variety of simplified depreciation rules. One of the most lucrative is the simplified general small business pool that supercharges depreciation deductions in the early years of ownership. While the temporary full expensing policy is discussed in an earlier article of this Maverick, we also want to delve into how it impacts the operation of this pool.
SBEs are those that have an aggregated turnover of up to $10 million. These businesses have access to the simplified general small business pool and other simplified depreciation rules.
All plant and equipment assets placed in the pool are usually depreciated at an accelerated rate. However, when the entire depreciable value of the pool is less than the current instant asset write-off threshold, it can be written off immediately.
When the instant asset write-off threshold was only $1,000 this was very simple. Since this time, it has been boosted from $20,000, $25,000, $30,000, to $150,000 and now no threshold applies at all while the temporary full expensing policy is in place.
But this raises the question, is it compulsory? If a small business has a pool, can they hold onto it rather than deduct the entire balance?
Some businesses may want to do this instead and take advantage of steady deductions each year. This can be helpful for industries that are currently powering through and experiencing growth. Examples include essential services, online-exclusive retailers and ecommerce suppliers, which may have a greater need for the deductions in later years.
However, Section 328.210(3) of the Income Tax Assessment Act 1997 instructs that the business must deduct the pool. As it stands, this section of the Act has remained unchanged since the latest thresholds were released. In addition, the Bill presented at the time the full expensing policy was introduced held the same terminology.
Businesses that use division 40 of the Income Tax Assessment Act 1997 can choose to opt out of temporary full expensing on an asset-by-asset basis. However, this amendment hasn’t been applied to Subdivision 328-D, which SBEs using the simplified rules use to calculate depreciation. This means SBEs must apply full expensing to their simplified pools.
However, it is still possible for a business to choose to no longer use the simplified depreciation rules. While their current pool with their used assets will still exist and follow the simplified rules, any new assets can be depreciated with the general depreciation rules under division 40.
It's important to note, if a business is using the simplified depreciation rules it must apply the entire set of rules, not just individual elements.
BMT has been specialising in commercial depreciation schedules for businesses for over twenty years and knows what to look for to ensure claims are maximised.
All business owners, large and small, can maximise their cash flows by claiming depreciation deductions. As the environment changes, BMT are keeping up to date with all amendments to taxation legislation to ensure depreciation claims are 100 per cent compliant.