Appendix 11: Calculating depreciation deductions for small business entities

Calculation 1: Deduction for certain assets and cost additions

For an explanation of the terms we use in this section, see Guide to depreciating assets 2024 and Tax time definitions.

Under the instant asset write-off measure, an immediate deduction is available for certain depreciating assets that:

• you start to use, or have installed ready for use for a taxable purpose between 1 July 2023 and 30 June 2024
• cost less than $20,000 as at the end of the income year
• qualify for a deduction under the simplified depreciation rules.

For an asset for which you have claimed an immediate deduction under the simplified depreciation rules in a prior income year, small businesses can also immediately deduct an amount included in the second element (cost addition) of that asset's cost, where the amount is:

• the first deductible amount of second element cost incurred after the end of the income year in which the asset was written off
• less than $20,000
• incurred between 1 July 2023 and 30 June 2024.

Work out the extent that each of these eligible assets and cost additions are used for the purpose of producing assessable income (taxable purpose proportion).

The deduction for each eligible asset is calculated as:

Asset’s adjustable value multiplied by its taxable purpose proportion.

The adjustable value of an asset is its cost less its decline in value since it was first used, or installed ready for use, for any purpose, whether business or private.

Add up all of the amounts from this calculation and write the total at row a in the Worksheet.

Don't include in this calculation amounts for depreciating assets that the company started to hold before starting to use the simplified depreciation rules. These assets are allocated to the general small business pool (see calculation 2).

Calculation 2: General small business pool

A small business entity can also deduct the balance of the general small business pool if the balance is below $20,000 but greater than zero at the end of the income year. For this purpose, the balance of the pool is determined prior to calculating your deductions but after taking into account any additions or disposals to the pool. Enter this deduction against general small business pool assets at row b in the Worksheet. For more information, see Calculation 5.

Calculation 2a: Opening pool balance

Calculate the opening pool balance, for:

• Companies that are already using simplified depreciation rules
• Companies that start to use simplified depreciation rules in the 2023–24 income year.

Companies that are already using simplified depreciation rules

For companies already using the simplified depreciation rules, the opening balance of the general small business pool is the closing pool balance for the previous income year, adjusted to reflect any changed business use of a pooled asset. However, as the company will have deducted the entire balance (if any) of the small business pool under temporary full expensing in the 2022–23 income year, the opening pool balance at the beginning of the 2023–24 income year is $0.

Write $0 at row b in the Worksheet.

Companies that start to use simplified depreciation rules in the 2023–24 income year

For companies that start to use the simplified depreciation rules in the 2023–24 income year, the opening pool balance is the sum of the taxable purpose proportions of the adjustable values of those depreciating assets that are held and used (or installed ready for use), just before the start of the 2023–24 income year, and that are not excluded from the simplified depreciation rules.

To calculate your general small business pool deduction for these assets, multiply the opening pool balance by the general small business pool rate (30%).

Write the total deduction at row b in the Worksheet.

Calculation 2b: Additions to the opening pool balance

Add to your opening pool balance the taxable purpose proportion of the following newly acquired assets and cost additions, where the amounts are equal to or exceed the instant asset write-off threshold:

• the adjustable value of assets that were first used, or installed ready for use, for a taxable purpose during 2023–24
• cost addition amounts (second element costs) for existing assets.

Also add the taxable purpose proportion of cost addition amounts that are less than the instant asset write-off threshold and are not immediately deductible (see Calculation 1).

To calculate your deduction for these pool additions, add together:

• The taxable purpose proportion of the adjustable value of each depreciating asset first used, or installed ready for use this year, multiplied by half the general small business pool rate (15%).
• The taxable purpose proportion of cost addition amounts, multiplied by half the general small business pool rate (15%).

Write the total deduction at row c in the Worksheet.

Calculation 2c: Subtractions from the opening pool balance

If the company ceases to hold an asset that has been allocated to the pool in the 2023–24 income year, or an earlier income year, the taxable purpose proportion of the termination value is subtracted from the pool balance (see Calculation 4b).

Calculation 3: Other depreciating assets

Calculate the deduction for the decline in value of all the other depreciating assets of the company that are not included in calculations 1 and 2. For information on how to calculate the decline in value of these assets, see the Guide to depreciating assets 2024.

Write the total deduction at row d in the Worksheet.

Don't include at row d in the Worksheet depreciating assets that qualify for a deduction under Subdivision 40-F or 40-G of the ITAA 1997, that have been used in the company's primary production business and for which the company has chosen to claim a deduction under these subdivisions and not under the small business entity depreciation rules, such as:

• water facilities
• fencing assets
• fodder storage assets
• landcare operations
• electricity connections
• telephone lines.

Include deductions for land operations, water facilities, fencing assets and fodder storage assets at item 7 – label N Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset.

Include deductions for qualified electricity connections and telephone lines at item 7 – label X Other deductible expenses.

For more information on these UCA provisions, see Appendix 4.

Calculation 4: Ceasing to hold depreciating assets

If you've sold or ceased to use an asset in 2023–24, see:

• Calculation 4a Certain assets for which an immediate deduction has been claimed
• Calculation 4b Assets allocated to the general small business pool
• Calculation 4c Other depreciating assets.

Calculation 4a Certain assets for which an immediate deduction has been claimed

If a balancing adjustment event happens to a depreciating asset for which the company has claimed an immediate deduction in Calculation 1 this income year or in a previous year, the company must include the taxable purpose proportion of the termination value at item 7 – label B Other assessable income.

A balancing adjustment event occurs when the company stops holding a depreciating asset – for example, when the company sells the asset, or the asset is lost or destroyed. The termination value includes money received from the sale of an asset or insurance money received.

For example, a company acquired an asset on 1 February 2019 for $6,400. The company used the asset only 60% of the time for a taxable purpose and claimed an immediate write-off of $3,840 under the threshold which existed at that time. The company disposed of the asset at arm's length on 1 February 2024 for $3,000 (excluding GST). Include $1,800 as income at item 7 – label B Other assessable income.

Calculation 4b Assets allocated to the general small business pool

If the company ceases to hold a depreciating asset that has been allocated to the general small business pool, the taxable purpose proportion of the asset's termination value is subtracted from the pool balance.

If expenses are incurred in disposing of, or otherwise ceasing to hold, a depreciating asset, these expenses may be taken into account in calculation 2 by adding them to the pool balance.

Calculation 4c Other depreciating assets

For information on how to calculate any balancing adjustment amounts on the happening of a balancing adjustment event for other depreciating assets, see the Guide to depreciating assets 2024.

Include assessable balancing adjustment amounts at item 7 – label B Other assessable income. Include deductible balancing adjustment amounts at item 7 – label X Other deductible expenses. See Worksheet 2.

Calculation 5: Closing pool balance

Calculate your closing pool balance at the end of the year as follows:

• Step 1: Start with the opening pool balance (see Calculation 2a).
• Step 2: Add the taxable purpose proportion of the adjustable value of assets that were additions to the pool during the year (see Calculation 2b).
• Step 3: Add the taxable purpose proportion of any cost addition amounts for assets already in the pool during the year (see Calculation 2b).
• Step 4: Subtract the taxable purpose proportion of the termination value of any pooled assets disposed of during the year (see Calculation 4b).

If after completing Step 4 your pool balance is less than $20,000 but greater than zero, you can claim an immediate deduction for this amount. Enter this deduction against general small business pool assets at row b in the Worksheet. The pool's closing balance for 2023–24 will be zero after claiming the immediate deduction.

If the value of the small business pool is $20,000 or more after completing Step 4, continue calculations as per the steps below.

• Step 5: Subtract the general small business pool deduction (see Calculation 2a).
• Step 6: Subtract the deduction for assets first used, or installed ready for use this year (see Calculation 2b).
• Step 7: Subtract the deduction for any cost addition amounts added for pooled assets during the year (see Calculation 2b).

If the closing pool balance is below zero, include the amount below zero in your assessable income at item 7 – label B Other assessable income.

The closing pool balance for this year becomes the opening pool balance for the 2024–25 income year, after any adjustments are made to reflect the changed business use of a pooled asset.

Don't write the closing pool balance on the company’s tax return.

Worksheet: Depreciation deductions for small business entities using simplified depreciation

Transfer the amount at row a to item 10 – label A Deductions for certain assets.

Transfer the amount at row e to item 6 – label X Depreciation expenses.

Transfer the total of the amounts at rows b and c to item 10 – label B Deduction for general small business pool.

Return to: Appendixes for the company tax return

Return to: Instructions to complete the Company tax return 2024