Is Cash Flow a concern in your Business?
One consideration is the instant tax deduction for assets costing less than $20,000 (i.e. up to $19,999 excluding GST), which allows Small Businesses to bring forward tax deductions that would otherwise be deductible over a number of years.
Example: Ben runs a painting business with an aggregate turnover of less than $2Million and is considered a Small Business. On the 15 May 2015 Ben buys a work Ute for $19,000 (excl. GST), under the old rules, the tax deduction would be $2,850 ($19,000 x 15%) (tax saving of $855*), under the new rules the tax deduction would be $19,000 (tax saving of $5,700*). Therefore, Ben receives an additional tax saving of $4,845 with the new changes.
*Based on a 30% tax rate. If a sole trader, then will be marginal tax rates.
What is the $20,000 immediate tax deduction?
Small businesses with an annual turnover under $2million can claim immediate tax deductions for assets costing less than $20,000 (up from $1,000) purchased between 7.30pm 12 May 2015 until 30 June 2017, rather than having claim the asset purchases as deductions over several years.
What assets does this apply to?
This applies to:
- to assets acquired after 7.30pm on 12 May 2015 until 30 June 2017
- on a per asset basis, so several assets each costing less than $20,000 would qualify
- to new and second hand assets.
Assets that cost $20,000 or more (which can’t be immediately deducted) will continue to be deducted over time using a small business pool.
The low pool value threshold will also increase to $20,000. This means that an immediate deduction is available if the pool balance is less than $20,000 at the end of an income year.
What assets can you buy?
A few ideas of assets that qualify include:
- Tradesmen’s tools, equipment and machinery
- Office and shop furniture and fit out, including new tables, chairs, new kitchen
- Work vehicles, Utes, cars and vans
- IT Equipment, including computers, printers, scanners and photocopiers
What’s not included?
There are a small number of assets that aren’t eligible for accelerated depreciation, some examples include:
- horticultural plants that have specialised depreciation rules,
- capital works which are subject to their own ‘capital works’ depreciation rules; and
- assets allocated to a low-value or software depreciation pool which are subject to the depreciation rules under those pools.
Benefits of the immediate tax deduction includes:
- Brings forward tax deductions, which improves cash flow and potentially save thousands in tax.
- Is ideal for Small Businesses planning to purchase assets anyway or businesses looking at updating equipment. If this can improve the bottom line (i.e. net profit) – consider taking advantage of this concession.
- Businesses can bring forward tax deductions by writing off asset pools with a value less than $20,000.
It is important to discuss the following with AGILIS CA & Advisors:
- Does your business satisfy the “Small Business test”?
- Review your business financial position. This is not an allowance or grant, therefore your financial and tax position should be reviewed before rushing out to buy assets. For example, if your business is not making a profit then a tax deduction is not beneficial.
- Is your business expected to make a profit next year or the year after? Then it may better to wait to use the tax deduction in those years. (Although important to note: the $20,000 threshold will revert back to $1,000 from 1 July 2017).
- Are you borrowing money to buy asset? Cash flow and financing costs need to be taken into consideration.
Come and speak to us at AGILIS CA to make sure that you take advantage of this instant tax deduction of $20,000, which can save your Small Business tax and improve your cash flow.
The content contained in this BLOG is intended only to provide a general overview on various tax topics. It is not intended to be comprehensive nor does it constitute tax or legal advice. You should seek professional tax advice before acting or relying on any of the content.