Accountants play a crucial role in assisting business owners with navigating complex processes. One such critical aspect demanding careful attention pertains to claiming deductions for depreciating assets.
Let’s delve into the strategic timing for claiming deductions, the various types of depreciating assets, and the significance of maintaining precise records to optimise tax benefits.
Strategic Timing for Deduction Claims
Timing is everything when it comes to claiming deductions for depreciating assets. If a depreciating asset contributes to your assessable income, you can generally claim deductions for its decline in value over time. The choice between the general depreciation rules and simplified depreciation rules depends on the size and structure of your business.
General Depreciation Rules:
- Most businesses can apply the general depreciation rules to calculate deductions for their assets.
- This method offers flexibility and is suitable for businesses of various sizes.
Simplified Depreciation Rules:
- Small business entities can leverage the simplified depreciation rules, streamlining the calculation process.
- This approach is particularly beneficial for smaller businesses seeking a more straightforward method for depreciating assets.
Low-Cost and Low-Value Assets:
- For assets falling under the low-cost and low-value category, businesses not using simplified rules can allocate them to a low-value pool and depreciate them at a set annual rate.
Accurate Record-keeping
Regardless of the depreciation method chosen, maintaining accurate and complete records is paramount. Efficient record-keeping ensures that all relevant expenses are accounted for, enhancing the accuracy of deductions. Emphasising the importance of meticulous documentation helps avoid discrepancies during audits and maximises the benefits of depreciating assets.
Understanding Depreciating Assets
A depreciating asset, as defined by the Australian Taxation Office (ATO), has a limited life expectancy and can be reasonably expected to decline in value over time. Common examples include machinery, motor vehicles, furniture, computers, and mobile devices. These assets may either be personally owned and brought into the business or purchased directly to generate assessable income.
Assets that Do Not Depreciate
While many assets depreciate over time, certain categories do not. These include land, trading stock items, and most intangible assets such as trademarks. However, it’s important to note that specific improvements to land and fixtures, such as fences, are considered depreciating assets.
Special Consideration for Claiming Depreciation
Sole traders and eligible partnerships using the cents per kilometre method for car expenses need to be aware that depreciation is already included in the claimed amount. It’s essential not to double-count the depreciation when calculating deductions separately.
Navigating the realm of depreciating assets requires a strategic approach to optimise tax benefits while ensuring compliance with regulations. Professional guidance from advisers aims to assist businesses in understanding the types of assets, choosing the appropriate depreciation method, and maintaining accurate records to maximise deductions and enhance overall financial positions.
Want to know more about the temporary tax incentives that may be available to you? Have a question about certain expenses? Start a conversation with a trusted adviser today.
