Tax Laws Amendment (Small Business Measures No. 2) Act 2015

The Tax Laws Amendment (Small Business Measures No. 2) Act 2015 amended the tax law to expand accelerated depreciation for two groups. First, it temporarily increased access to simplified depreciation concessions for eligible small business entities. Second, it introduced faster deductions for certain assets used in primary production.

The Act is structured in two main schedules. Schedule 1 deals with accelerated depreciation for small business entities. Schedule 2 deals with accelerated depreciation for primary producers. The amendments were made to the Income Tax Assessment Act 1997, and for the temporary small business threshold changes, also to the Income Tax (Transitional Provisions) Act 1997.

If you are reading this page for current planning, the most important point is that the small business measure in this Act was temporary. It applied to a defined period starting at 7.30 pm, by legal time in the Australian Capital Territory, on 12 May 2015 and ending on 30 June 2017. Later thresholds may be different.

For the small business depreciation changes, the Act applies through the existing simplified depreciation rules for a small business entity. The legislation extract does not restate the full definition of small business entity, but the measure sits within Subdivision 328-D of the Income Tax Assessment Act 1997. In practice, businesses usually need to confirm whether they satisfy the small business entity test for the relevant income year, including the aggregated turnover rules and whether connected entities or affiliates affect that result.

This can matter for groups that operate through more than one entity, family businesses using trusts and companies, or businesses that have related entities with shared control or influence. A business that looks small on a single-entity basis may not qualify once aggregated turnover is considered.

For the primary producer measures, the relevant expenditure must be incurred primarily and principally for use in a primary production business that you conduct on land in Australia. The Act specifically addresses water facilities, horticultural plants, fodder storage assets and fencing assets.

The temporary increase from $1,000 to $20,000 was not open-ended. The Act inserted transitional rules so that the usual threshold in the simplified depreciation provisions was treated as $20,000 for eligible assets and costs during the specified period.

For an asset to access the $20,000 threshold, two timing conditions mattered. First, you had to first acquire the asset at or after the 2015 budget time, being 7.30 pm ACT time on 12 May 2015. Second, you had to first use the asset for a taxable purpose, or first install it ready for use for a taxable purpose, at or after that time and on or before 30 June 2017.

The same Act also changed the treatment of second element costs. If an amount was included in the second element of the cost of an asset at or after the 2015 budget time and on or before 30 June 2017, the legislation treated the relevant threshold as $20,000 instead of $1,000 for that purpose as well.

The threshold applied per asset. It was not a single overall cap on all business purchases. If multiple separate assets each met the conditions and each cost less than the threshold, the legislation could apply to each of them individually.

Although this Act is an amending Act rather than a stand-alone compliance code, businesses still needed to get several practical points right before claiming deductions. The first is eligibility. The increased threshold only worked within the simplified depreciation framework for eligible small business entities.

The second is timing. The law is precise about when the asset was first acquired and when it was first used, or first installed ready for use, for a taxable purpose. Buying an asset before the cut-off but not having it ready for use by 30 June 2017 could change the outcome.

The third is taxable purpose. The transitional rule refers to first use, or first installation ready for use, for a taxable purpose. Businesses therefore needed records showing business use and the relevant date. The fourth is cost treatment. The Act also dealt with second element costs and the low-value pool threshold for the relevant income years, so later improvements or additions to an asset could also need review.

The fifth is that these were temporary settings. A business reviewing historic returns can use this Act to understand the 2015-16 and 2016-17 position, but a business making a new purchase now should check the current law rather than assuming the same threshold still applies.

Schedule 2 expanded accelerated depreciation for primary producers by changing the capital allowance rules for certain assets. The legislation states that you can deduct amounts for capital expenditure on water facilities immediately, horticultural plants over a period related to the effective life of the plant, fodder storage assets over 3 income years, and fencing assets immediately.

The Act defines a fodder storage asset as an asset or structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to an asset or structural improvement, that is primarily and principally for the purpose of storing fodder. It defines a fencing asset as an asset or structural improvement that is a fence, or a repair of a capital nature, or an alteration, addition or extension, to a fence.

For fodder storage assets and fencing assets, the capital expenditure on construction, manufacture, installation or acquisition must have been incurred primarily and principally for use in a primary production business that you conduct on land in Australia. The amendments apply to assets that an entity starts to hold, or expenditure an entity incurs, at or after 7.30 pm ACT time on 12 May 2015.

The Act includes important limits that businesses should not overlook. For fodder storage assets, you cannot deduct an amount for capital expenditure on acquisition if any entity has deducted or can deduct an amount under the same Subdivision for earlier capital expenditure on the construction or manufacture of the asset, or a previous acquisition of the asset.

The same kind of restriction applies to fencing assets. You cannot deduct an amount for capital expenditure on acquisition if any entity has deducted or can deduct an amount under the Subdivision for earlier capital expenditure on the construction or manufacture of the fencing asset, or a previous acquisition of the fencing asset.

There is also a specific overlap rule for fencing assets. You cannot deduct an amount to the extent that any entity has deducted or can deduct the amount under subsection 40-630(1) about landcare operations. In addition, you cannot deduct an amount for a fencing asset if the fencing asset is, or is a repair, alteration, addition or extension to, a stockyard, pen or portable fence.

These limits mean that businesses should review both the nature of the asset and the deduction history attached to it, especially where assets are acquired second-hand, transferred between entities, or improved over time.

The Act received Royal Assent on 22 June 2015, and the main operative provisions commenced on that date. However, some of the tax outcomes were tied to earlier or later application dates set out in the schedules.

For the small business entity measure, the transitional rules refer to the 2015 budget time, being 7.30 pm ACT time on 12 May 2015, and apply through to 30 June 2017. For the primary producer amendments, the application provision states that the amendments apply to assets an entity starts to hold, or expenditure an entity incurs, at or after that same 12 May 2015 time.

The compilation linked here is a compilation in force on 22 June 2017 and includes amendments up to Act No. 56 of 2017. That matters because the page should be read as a historic explanation of the 2015 Act and its operation in that compiled form, not as a statement of the current depreciation threshold for new purchases.

Before relying on this page for a tax position, check the exact income year, the date and time of acquisition, the date the asset was first used or first installed ready for use, and whether the asset was used for a taxable purpose. If you are relying on the small business entity rules, also confirm that the entity qualified for the simplified depreciation regime in that year.

If you are a primary producer, check that the expenditure was incurred primarily and principally for use in a primary production business conducted on land in Australia, and that the asset falls within the statutory category claimed. For fencing assets, also check that the asset is not a stockyard, pen or portable fence, and that there is no overlap with another deduction already available or claimed.

Because depreciation settings have changed over time, businesses should also confirm whether later legislation affects the year they are dealing with. This page is most useful for understanding the 2015 Act itself and reviewing historic claims made during the period it covered.

This page is based on the Federal Register of Legislation compilation of the Tax Laws Amendment (Small Business Measures No. 2) Act 2015 in force on 22 June 2017. The Act amends the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997. For the full text, use the legislation link for the latest compilation and check any later amendments that may affect current year tax treatment.