HENRY TAX REVIEW: Instant write-offs jump to $5,000 for small business

Small businesses will be able to write-off assets worth up to $5,000 in the year of purchase under changes announced by the Federal Government today. In a fillip for small businesses, this means that many assets bought by small businesses – defined as less than $2 million – revenue will be able to be written off instantly.

Currently small items worth less than $1,000 can be immediately written off and others allocated to one of two depreciation polls at either 30% or 5% rate depending on the life of the asset.

Now the Government has extended instant write-offs to $5,000 and small businesses can depreciate all other assets (other than buildings) in a single pool at the rate of 30%. This measure starts on July 1, 2012.

An example of how the new write-off will work is a $4,000 display fridge purchased by a café.

Under existing small business depreciation rules there would be a $600 deduction in the first year. But under new rules the entire $4,000 would be deducted in that first year with a tax deduction increase to the small business of $3,400 in the first year.

The Government has already experimented with increasing the depreciation allowance last year in an effort to boost small business cashflow through the GFC. That finished at the end of last year despite calls for it to be extended.

This move will prove popular with small business owners, book keepers and accountants alike. And you can be sure that Small Business Minister Craig Emerson, will be selling both the improvement to cashflow and the cut in red tape very hard to his constituency.