Private ruling: Business deductions
Date of advice: 25 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to claim the asset write off on capital purchases up to $20,000? | A1: Yes.

Relevant facts and circumstances: You commenced your activity in 20XX. You provide engineering services which are primarily aimed at small businesses, industries and individuals. The activities range from initial consultation on existing or preventable mechanical issues, troubleshooting, testing and evaluating, designing, fabrication and the manufacturing of goods. You do not have a business plan or projected profit and loss statements. You require a vehicle, transportable tools and equipment as well as light industrial machinery and equipment to carry out your activities. You have qualifications and expertise relevant to your activity. You do not hold any other employment. You are currently contracting for an entrepreneur who is still within the start-up phase of their small business activity. You spend anywhere from 30 to 50 hours a week on this activity. At the moment you do not have the time or need to advertise your services to other clients. You earned approximately $X from your activities in 20XX. Your turnover for the 2015-16 financial year will be less than $2 million.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: You can choose to use simplified depreciation rules if you have a small business with an aggregated turnover of less than $2 million. Under these simpler rules, you: • claim an immediate deduction for most depreciating assets that cost less than $20,000 each that was acquired and installed ready for use from 7.30pm (AEST) on 12 May 2015 until the end of 30 June 2017 • pool most other depreciating assets into a general small business asset pool and • claim a 15% deduction in the first year (regardless of when you purchased or acquired them during the year) • claim a diminishing value rate of 30% deduction on the opening pool balance each year after the first year (regardless of their effective life) • deduct the balance of your general small business pool at the end of an income year if the balance of the pool at the end of the year is less than $20,000. Aggregated annual turnover means the total normal sales of your business and that of any associated businesses. | Detailed Reasoning - Carrying on a business: Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. Taxation Ruling TR 97/11: 'Income tax: am I carrying on a business of primary production?' summarises the indicators that can be applied to your circumstances to determine whether you are carrying on a business: • whether the activity has a significant commercial purpose or character • whether the taxpayer has more than just an intention to engage in business • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity • whether there is regularity and repetition of the activity • whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business • whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit • the size, scale and permanency of the activity, and • whether the activity is better described as a hobby, a form of recreation or sporting activity. | Detailed Reasoning - Application to your circumstances: In this case, your activity has a commercial purpose and you have demonstrated that you have more than just an intention to engage in business. There is significant repetition and regularity as you spend 30 to 50 hours a week on the activity. You have qualifications and expertise relevant to your activity and do not hold any other employment. We accept that your activities amount to the carrying on of a business. As your turnover is less than $2 million, you are entitled to apply the simplified depreciate rules outlined above, including claiming an immediate deduction for a depreciating assets that cost less than $20,000.