Your 2013 Small Business tax may be reduced by extra depreciation deductions


Whilst there have been a number of changes to the tax system affecting small business in the 2013 tax year, there has been a very positive shift within the depreciation deduction regime for small business and it works like this:

A very crucial and sizeable deduction is available for the 2013 financial year for small business with gross turnover of $2 million or less. Known as the Instant Asset Write off Deduction, it has been increased from $1,000 to $6,500. Here's an example:

Lets' say between 1 July 2012 & 30 June 2103, your business purchased a new computer system costing say, $6,000; under the new concession, all of the amount invested in the new computer systemi.e. $6,000 is fully tax deductible in the 2013 tax year! This is  is favorably different to the time lagged deduction which could be a number of years under the old rules.

Similarly, if the same business also had to purchase a high speed copier/printer during the 2013 tax year, costing say, $3,000, that would also be fully written off in addition to the computer system. In other words, all business assets that your business purchased between 1 July 2012 to 30 June 2013 costing $6,500 or less, will be eligible for a 100% write-off. This can make a substantially positive difference to your business tax bill for 2013; let's face it, we all relish in this fact......a reduced tax bill is cash flow for your business!

But wait, there’s more !!! ……. And I only use this cliché as there is indeed more good news for small business!

It has to do with business motor vehicles, a very important and common work tool for most of us in small business. Here are the highlights under the instant asset write off deduction concessions for business motor vehicles:

If you purchased a business vehicle between 1 July 2012 & 30 June 2103 at a cost of say $35,000, you can write off the first $5,000 in your 2013 business tax return. This write-off is over and above the usual 15% depreciation deduction that a first year asset generally attracts. In this instance the total depreciation is translated into a deduction as such:

Cost of vehicle $35,000

Less immediate write off 5,000 (remainder value of vehicle is now $30,000)

Add 15% depreciation 4,500 (30,000 x 15%)

Total depreciation $9,500

It is important to note that the business usage in the above examples is assumed as 100%. Corresponding adjustments may be applicable where private use of the asset is to be considered.

Note: Tax deductions are made available under law to reduce tax, however they should be a secondary consideration in business planning. All business purchases should be made with cash flow considerations at the forefront. Consulting your accountant &/or business advisor is strongly recommended.

Samson Patrick

Principal at The Diligent Group - Small Business Specialists in Accounting, Taxation, Planning, Legal & Marketing

Founder & Principal of the Diligent Group of SME Accountants, Business Advisors & Commercial lawyers. Over 25 years in public practice, experienced advisor to SMEs,ranging from business startups, business structures, ongoing business management & development, business succession, business windups, also specialising in all taxation audits and negotiations with track history of success in this crucial SME area of business compliance; Passionate Small Biz reforms advocate.