08 Aug Benefits to Business from the current accelerated depreciation

Example 1 – Small business benefits from accelerated depreciation

Jill and Bob own a company, NC Transport Solutions Pty Ltd, through which they operate a haulage business based in a regional New South Wales city. NC Transport Solutions Pty Ltd has an aggregated annual turnover of $8 million for the 2019-20 income year. On the 1 May 2020, Jill and Bob purchase a new truck for $260,000, exclusive of GST, for use in their haulage business.

Under past tax arrangements, NC Transport Solutions Pty ltd would depreciate the truck using their general small business pool. This means that NC Transport Solutions Pty ltd would deduct 15% of the asset’s value when they added it to the pool,leading to a tax deduction of $39000 for the 2019-20 income year ( assuming there are no other assets in the pool).

Under the new accelerated depreciation, NC Transport Solutions Pty Ltd will instead claim a deduction of 57.5% when they add it to the pool, leading to a deduction of $149,500 for the 2019-20 income year.

Example 2 – Middle-sized business benefits from accelerated depreciation

J Construction Solutions Pty Ltd has an aggregated annual turnover of $200 million for the 2020-21 income year. On the 1st July 2020, J Constructions Solutions Pty ltd installs a $1 million truck mounted concrete pump for use in their business.

Under past tax arrangements , in the first year J Construction Solutions Pty Ltd could claim 30% depreciation when using the diminishing value method (based on the asset’s effective life of six and two thirds years ).

Under the new accelerated depreciation, J Construction Solutions Pty Ltd can claim a depreciation deduction of $650000.00 in the 2020-21 income year. This consists of 50% of the concrete pump’s value under new accelerated depreciation ($500,000) plus 30% of the remaining $500,00 under existing rules ($150,000).

We recommend with any matters pertaining to taxation that you consult your external accountant.