Use it or Lose it

Regulars

Use it or Lose it.

By Simon Byrne.

If you are a small to medium profitable production company thinking of buying some new gear, this month is a great time to do it.

The May Federal Budget extended the simplified depreciation rules allowing the instant write off threshold for assets up to $20,000 to 30th June 2019. But to take advantage in this financial year, you must act quickly. As part of the 2015 Federal Budget, the government announced this significant change to the simplified depreciation rules which have great benefits for the production industry.

The reason that it is so attractive is because it can be applied to every individual asset up to $20,000 each. So 20 moving lights might add up to, say, $140,000, but each individual light is less than $20,000, so they can be written off completely. That means the $140,000 is deducted from your taxable income and you’ve 20 new, income producing lights.

See where this is heading?

We buy lots of speakers to make a PA system, lots of lights to make a lighting rig, and lots of panels go together to make a LED screen. As long as each individual asset within a system is less than $20,000, they can be fully deducted this financial year.

Assets that cost $20,000 or more cannot be immediately deducted, and will continue to be deducted over time using the general small business pool (typically 30% per year). You can however write-off the balance of this pool if the balance (before applying any other depreciation deduction) is less than $20,000 at the end of the financial year.

BUT… each asset needs to be a standalone useable asset even though they are a component of a system.

Your business is eligible if you have a turnover of less than $10 million (increased from $2 million on 1 July 2016), and the assets are first used or installed ready for use in this financial year.

As always with tax stuff, get your own professional independent advice. This article is only of a general nature and might be and might be wrong for your particular circumstances.

Direct from The ATO: Simplified depreciation – rules and calculations.

You can choose to use the simplified depreciation rules if you have a small business with an aggregated turnover of less than:
• $10 million from 1 July 2016 onwards
• $2 million for previous income years.

Under these rules you:
• immediately write-off – that is, claim their full cost in the year you buy them, most depreciating assets costing less than $20,000 (the current instant asset write-off threshold), that were bought and used, or installed ready for use from 7.30pm (AEST) on 12 May 2015 until 30 June 2018
(ATO have not yet updated this date on their website: Ed.)

• pool most higher cost assets (those with a cost equal to or more than the current instant asset write-off threshold) and claim:
– a 15% deduction in the year you buy them
– a 30% deduction each year after the first year

• deduct the balance of your small business pool at the end of the income year if the balance at that time (before applying the depreciation deductions) is less than the instant asset write-off threshold.
If you choose to use the simplified depreciation rules, you must:

• use them to work out deductions for all your depreciating assets except those specifically excluded
• apply the entire set of rules, not just individual elements (such as the instant asset write-off)
• only claim a deduction for the portion of the asset used for business or other taxable purposes – not for the portion for private use.

If you choose to stop using the simplified depreciation rules or become ineligible to use them, you’ll need to use the general depreciation rules

This article first appeared in the print edition of CX Magazine June 2018, pp.44-45. CX Magazine is Australia and New Zealand’s only publication dedicated to entertainment technology news and issues. Read all editions for free or search our archive www.cxnetwork.com.au

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