Understanding the New Small Business Asset Depreciation Policy

Small businesses often face challenges when managing cash flow and purchasing necessary assets. Recognizing this, recent policy changes have introduced accelerated depreciation rules. Now, if your business purchases assets under $20,000, you can immediately deduct the full cost as an expense, rather than spreading the deduction over several years.

This update aims to boost small business growth by making asset investments more affordable and accessible. It’s a significant change that can have immediate tax benefits, especially for businesses planning to upgrade equipment, technology, or furniture.

Key Details of the Policy Update

What Assets Are Covered?

The rule applies to tangible assets—physical items used in your business, such as:

• Machinery and equipment
• Computers and software
• Furniture and fittings
• Vehicles (provided they meet other criteria)

Assets costing less than $20,000 qualify for immediate deduction. If an asset costs exactly $20,000, it’s included, but total costs must not exceed this amount per asset.

Important Dates and Duration

• The policy is temporary.
• You can immediately deduct assets under $20,000 until June 30, 2025.
• After this date, the standard depreciation rules will apply again.

How to Apply the Deduction

• Purchase eligible assets before June 30, 2025.
• Record the purchase and keep proof, such as invoices or receipts.
• Claim the deduction in your business’s income tax return for the financial year.

Why the Change Matters

Prior to this update, small businesses could only claim a percentage of the asset’s cost each year. Now, they can fully deduct assets under $20,000 upfront. This accelerates tax savings and improves cash flow.

"This policy provides a much-needed boost for small businesses, helping them invest in growth without the waiting period of traditional depreciation," says John Smith, tax expert.

Practical Examples

Example 1: Small Retail Business Upgrade

Imagine you own a small retail shop. You purchase new shelving units costing $15,000 in April 2025. With this policy, you can deduct the entire $15,000 in your current tax return. This reduces your taxable income immediately, freeing up cash for other expenses.

Example 2: Tech Startup Purchase

A tech startup spends $19,500 on laptops and office equipment in May 2025. They claim the full deduction for these assets in their tax return, improving their financial position without waiting for depreciation to be claimed over several years.

Example 3: Multiple Assets, Same Year

Suppose a landscaping business buys various small tools totaling $18,000 in June 2025. All these items qualify for immediate deduction, simplifying the accounting process and providing quick tax relief.

Eligibility and Requirements

To benefit from this policy, your business must meet certain criteria:

• Be a small business (turnover less than $10 million).
• Purchase assets before June 30, 2025.
• The assets must cost less than $20,000 each.
• The assets must be used or held ready for use in your business.
• Keep proof of purchase, including invoices and payment records.

Important:

• The law applies to new and used assets.
• If you buy a second-hand asset for under $20,000, you qualify.
• You can combine multiple assets if they were purchased separately but total less than $20,000 each.

Documentation and Record-Keeping

Maintaining proper records is crucial:

• Keep all invoices and receipts.
• Note the purchase date and amount.
• Record how the asset is used in your business.
• Maintain proof that the asset cost less than $20,000.

Good record-keeping not only supports your tax claim but also helps in case of audits.

How to Maximize Benefits

Here are tips to make the most of this temporary rule:

• Plan purchases: Timing is key; buy assets before June 30, 2025.
• Combine purchases wisely: Two assets purchased separately for under $20,000 each qualify.
• Review your depreciation schedule: Consider whether accelerating asset purchases benefits your current year's tax position.
• Consult a tax professional: For personalized advice tailored to your business.

Be Mindful of the Policy's End Date

Remember, this is a temporary measure. After June 30, 2025, assets costing less than the full amount will revert to standard depreciation rules. Planning purchases accordingly helps you maximize tax benefits during this window.

Final Thoughts

The ability to immediately claim assets under $20,000 can significantly improve your small business’s cash flow and tax position. It encourages investment, supports growth, and simplifies accounting during this period.

If you’re considering making asset purchases in the coming months, now is the time to act. Proper planning ensures you benefit fully from this policy update.

For ongoing updates on tax policies and small business support, stay connected with your trusted financial advisor or consult the Australian Taxation Office (ATO) resources.