Phone: (03) 9563 4688

Email: office@aubreypaton.com.au

Address: 17D Chester Street, Oakleigh VIC 3166

Latest Accounting News
Hot Issues
300,000 SMEs utilising $20K write-off, says ATO
‘A bad thing times 10’: ATO set for new SMSF blitz
Capital Gains and Renounceable Rights
Paperwork bungles lead to $38k in payments
Australian Dietary Guidelines and healthy eating chart (PDF)
Former director liable for company’s unpaid tax liabilities
Resources on our site to help you, your family and your friends.
Super for housing measures enter Senate
No Special Circumstances to allow Excess Super Contributions
Housing tax measures progress to Parliament
AirBnb – wrong tax outcome?
Are young investors wasting their youth?
ATO sending 'more letters than ever' on income tax errors
Powerful Budgeting, cash flow and Super Tools available on our site.
Property, unit trusts in ATO's sights
Australian Dietary Guidelines and healthy eating chart (PDF)
Major Bank Levy Passed
NSW tops list as ATO reveals billions in lost super
Australia's leading causes of death - ABS
How is your super going, ready for retirement?
ATO increasing data exchange with international regulators
Illegal SMSF early access scheme leads to $6,000 fine
Our 'hardest' SMSF tasks
Uber drivers hit for 10% tax
Lack of literacy promotes unrealistic goals
Taxpayer failed to prove that payments were “loans”
New STP dates confirmed as ATO goes on compliance blitz
ATO flags compliance project for FY17/18
Items that heat up your depreciation deductions
Articles archive
Quarter 3 July - September 2017
Quarter 2 April - June 2017
Quarter 1 January - March 2017
Quarter 4 October - December 2016
Quarter 3 July - September 2016
Quarter 2 April - June 2016
Quarter 1 January - March 2016
Quarter 4 October - December 2015
Quarter 3 July - September 2015
Quarter 2 April - June 2015
Quarter 1 January - March 2015
Quarter 4 October - December 2014
Quarter 3 July - September 2014
Quarter 2 April - June 2014
Quarter 1 January - March 2014
Quarter 4 October - December 2013
Quarter 3 July - September 2013
Quarter 2 April - June 2013
Quarter 1 January - March 2013
Quarter 4 October - December 2012
Quarter 3 July - September 2012
Quarter 2 April - June 2012
Quarter 1 January - March 2012
Quarter 4 October - December 2011
Quarter 3 July - September 2011
Quarter 2 April - June 2011
Quarter 1 January - March 2011
Quarter 4 October - December 2010
Quarter 3 July - September 2010
Quarter 2 April - June 2010
Quarter 1 January - March 2010
Quarter 4 October - December 2009
Quarter 3 July - September 2009
Quarter 2 April - June 2009
Quarter 1 January - March 2009
Quarter 4 October - December 2008
Quarter 3 July - September 2008
Quarter 2 April - June 2008
Quarter 1 January - March 2008
Quarter 4 October - December 2007
Quarter 2 April - June 2007
Quarter 1 January - March 2007
Quarter 2 April - June 2006
Quarter 1 January - March 2006
Quarter 4 October - December 2005
Quarter 3 July - September 2005
Quarter 4 of 2016
Articles
Big-ticket tax set for government review
FBT – Christmas Parties and Taxi Fares
Unclaimed Monies - Christmas Project?
Employee Christmas Parties and Gifts – Any FBT?
‘Beware the tax man’ eyeing holiday period activity
Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
Research reveals key to ‘high-performing’ firms
Late payments hitting SMEs hard
Estate planning issues flagged with $1.6m pension transfer cap
Travel to a workplace: What’s in, what’s out
New fleet “safe harbour” approach for car fringe benefits
Struggling Business Turnarounds
SMSF practitioners told to urgently address TRIS issues
$20,000 write off is only available for small business, right? Well…
Do you need an Employment Agreement?
What does the new withholding tax mean for your clients?
Domestic (non-marital) Relationships
Is there a problem with using your company’s assets for yourself?
SMEs at risk of ‘falling foul’ of ATO
Scams, fraudsters and viruses
Got your car log book ready?
$20,000 write off is only available for small business, right? Well…

 

Everyone assumes that the $20,000 instant asset write-off is exclusive to eligible small businesses.



       


 


However there is a hidden gem buried within the small business simplified depreciation provisions that in some circumstances can widen the application of this valuable deduction.


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 those rules may be applicable to a wider proportion of taxpayers.


Isn’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 year.

The legislation leaves no doubt that only a small business entity can utilise the $20,000 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 does not affect their eligibility.


Isn’t the $20,000 write-off only for assets used in the small business?


Actually, no. The law is more generous than that. 


The small business entity can deduct the cost of the asset for the income year in which the taxpayer starts to use the asset, or has it installed ready for 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 including 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 (such as dividends, net rental income, 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 income, employment income or investment income.

Where the asset is held only partially for an income-producing purpose, a corresponding proportion of the asset’s cost will be deductible. 


Remember that the instant write-off is only available if the total cost of the asset is less than $20,000, and not just the taxable purpose portion of the cost.


Case study


Rosaria “carries on a business” from home as a sole trader, and meets the conditions to qualify as a “small business entity” in relation to her business activities.


Rosaria is also employed part-time by a company as a member of its management team. Due to her family responsibilities and business activities, she works in the company’s offices only two days a week. On the days when she is not in the office, she fulfils her duties from home.


During 2015-16, Rosaria purchased a new desktop computer for her home for $5,000. Her records show that she uses the computer 70% for her employment duties and 30% for personal purposes. She has continued to use her old laptop for her home business activities. The new computer is not used for the home business at all.


In her 2015-16 tax return, Rosaria will be able to claim a total of $3,500 for the new computer under the instant asset write-off (70% of $5,000). Despite the fact that she does not use the computer in relation to her small business, she is eligible for the deduction because:


  • she is a small business entity (in relation to her home business), and
  • she holds the computer partly for a taxable purpose (being the purpose of deriving assessable income from employment).

Small business entity pooling


The above commentary only looks at how the $20,000 write-off can be applied to assets used for deriving non-business income – as long as the taxpayer is a small business entity by virtue of their business activities. 


The same analysis applies to the general small business pooling regime within the simplified depreciation system. That is, a small business entity taxpayer may pool assets held for a “taxable purpose”.


 


Tax & Super Australia 
www.taxandsuperaustralia.com.au




6th-November-2016