Following the Federal Governments recent budget announcement regarding the $20,000 immediate asset write-off, there has been a lot of interest in the details. In this post we address some of the more common queries.

1. Private motor vehicle transferred to a trust

I personally own a motor vehicle in my own name.  I want to transfer it across at market value to the family discretionary trust.  Assuming the motor vehicle is under $20,000 and a log book is to be kept, can I claim an immediate asset write-off in the trust?

Answer

Firstly, you would need to confirm that the trust is classified as a small business entity and would qualify for an immediate deduction under the simplified depreciation rules.

You should also be aware that there is a risk that Part IVa could apply to this arrangement to deny the immediate deduction if the car was being transferred from the individual to the trust with the sole or dominant purpose of obtaining a tax benefit.

See the extract from the explanatory memorandum to the Tax Laws Amendment (Small Business Measures No. 2) Bill 2015 below:

“1.18 While a specific provision has not been included under these amendments in relation to artificial or contrived arrangements, the general anti avoidance provisions are intended to be applied to arrangements of that kind. In the event of evidence that small business entities systematically engaged in artificial or contrived arrangements designed to take advantage of the increased threshold and the general anti-avoidance provisions became too administratively difficult to apply, retrospective amendments to explicitly prohibit such behaviour would be considered to ensure that the integrity of the small business capital allowance provisions is maintained.”

So in this scenario it would be a good idea to clearly document the non-tax reasons for this transaction (i.e. to explain the commercial reasons).

2. Trigger point for $20k deduction: paid or installed?

I am about to purchase equipment which will cost approximately $7,000 AUD. I was under the impression that if I paid before June 30, I could claim the deduction in this financial year’s tax return? However, the equipment won’t actually be delivered and installed until the end of July – so does that mean we have to wait until next year to claim it?

Answer

Businesses need to ensure that they only claim a deduction in the year in which the asset is first used or installed ready for use and to the extent to which the asset is used in an income earning activity for a taxable purpose.

So if you purchased business equipment (a depreciating asset) on 30 June 2015 but only took delivery at the end of July 2015, it is unlikely that the equipment would be considered as first used or installed ready for use as at 30 June 2015. If so, the business equipment costing less than $20,000 would only be immediately deductible by the business in the 2016 income year.

See the explanatory memorandum to the Tax Laws Amendment (Small Business Measures No. 2) Bill 2015.

3. Motor vehicle balloon payments & the immediate deduction

If a motor vehicle is bought on lease and the balloon payment is payable now (and is less than $20K) can we write it off?

Answer

First, it is necessary to assess ownership of the motor vehicle when the lease arrangement was first entered into.

For example, if the terms of the lease provided a residual value which was less than the expected market value of the motor vehicle at the end of the lease, then the ATO could determine that you were the owner of the vehicle (for depreciation purposes) when the lease began. If so, the residual payment would not qualify for the immediate write-off rules because the motor vehicle would have been acquired for tax purposes before Budget night (when the lease arrangement was first entered into).

On the other hand, if the terms of the lease provided a residual value which is more than the expected market value of the motor vehicle at the end of the lease, you are far more likely to only be treated as the owner of the motor vehicle after the balloon payment is made. If that is the case and (and you qualify as a SBE), then you should be entitled to the immediate deduction (based on the business use percentage of the motor vehicle) provided that the balloon payment is less than $20,000 and was made after Budget night.

See the explanatory memorandum to the Tax Laws Amendment (Small Business Measures No. 2) Bill 2015.

4. What’s included in the cost of a motor vehicle?

A SBE wants to purchase a motor vehicle and apply the $20,000 immediate write off concession. Can you please confirm if stamp duty, CTP, registration and/or optional extras are included as part of the $20,000 or are they separate items that is not included to form the $20,000.

Answer

This depends on whether the amounts are included in the cost of the vehicle for depreciation purposes.

Any payments incidental to starting to hold the asset (e.g. stamp duty) should form part of the cost of the vehicle for the purposes of calculating cost for depreciation purposes. The cost would also include optional extras that are fitted to the vehicle and do not have a separate identity or function in their own right.

However amounts paid for registration, insurance, extended warranty etc. should not be included in the ‘cost’ of the vehicle for depreciation purposes.

5. Is GST included for the immediate deduction

1. I have heard that GST is not included as part of the tax break – is an asset purchased for $19,800 (excluding GST) for machinery, with total invoice amount $21,780 eligible under the $20,000 small business tax break?

2. For this machine I have also purchased (on a separate invoice) additional accessories for an additional $3,700 (excluding GST). Can you please confirm if the assets are allowed as a deduction under the $20,000 small business tax break, as they are separate assets?

Answer

1. If you are registered for GST and can claim back the GST credits, then the immediate deduction should be available if the GST exclusive amount is less than $20,000.

2. This really depends on whether the accessories represent separate depreciating assets in their own right. The immediate deduction could potentially apply in this case if either:

• The accessories are separate depreciating assets in their own right and do not form part of the machine; or
• The machine was purchased and used in one income year (e.g., the 2015 income year) with an immediate deduction being available and the additions to the machine were purchased and installed / used in the following income year (e.g., the 2016 income year).

6. Can an asset purchased before budget night qualify?

Is an SBE which purchased a depreciating asset costing less than $20,000 prior to budget night eligible for the 100% deduction if:

a) the asset was paid for prior to budget night but was not delivered/installed ready for use until after budget night; or
b) the asset was paid for after budget night and was not delivered/installed ready for use until after budget night

Answer

The Budget announcement simply referred to assets that were first used or installed ready for use from Budget night onwards. However, the EM to the Bill containing the new rules confirms that the assets must be both:

• First acquired at or after 7.30pm AEST 12 May 2015; and
• Are first used or installed ready for use by 30 June 2017.

The EM confirms that assets that were acquired before Budget night will continue to be subject to the $1,000 threshold, even if the assets are first used or installed ready for use after Budget night.

Lloyd Priddle

Lloyd has had a very successful career as an accountant, director and author for almost 40 years. Holding post-graduate qualifications in Business, Lloyd has specialised in Business Development, and worked with the Queensland Government and local councils on numerous occasions through association with AusIndustry and the SBAS Natural Disaster Assistance Program. He is also board member of a number of commercial and not-for-profit entities.