finance The Small Business Benefit As good as it sounds? Since the government changed the rules in May to allow an immediate tax deduction for asset purchases under $20,000, there has been an unprecedented level of interest across the small business community. But as Darren Hagarty, Director of accounting firm PT Partners explains, there are a number of myths and misconceptions that have surfaced as to how the rules actually work. In the May 2015 Federal Budget the Government increased the instant asset write-off threshold for small businesses to $20,000 (up from $1,000). This new threshold applies to assets purchased and installed ready for use or actually used in your business between 7.30pm on 12 May 2015 and 30 June 2017. Assets valued at $20,000 or more (which cannot be immediately written-off) can continue to be depreciated at 15% in the first income year and 30% each income year thereafter. With a massive twenty-fold increase to the instant write-off threshold, and with more than 2.3 million small businesses in Australia, the impact of this measure is profound. For small business owners therefore, a working knowledge of how the new law applies and the opportunities it presents is important. Who is Eligible? There are two key eligibility criteria. Firstly, you must be running a business. Therefore, non-business taxpayers such as salary and wage earners and most investors are ineligible. Provided this criterion is met, all business structures may be eligible – sole traders, partnerships, companies and trusts. Secondly, your business’s turnover must be less than two million dollars in the current financial year or in the previous financial year. This includes the turnover of any related or affiliated entities. Which Asets? This new instant write-off threshold applies to all types of depreciable assets purchased and installed ready for use between the above dates, including tools, machinery, vehicles, furniture, computer equipment etc. Therefore, virtually all businesses will have assets that will be eligible for this new concession. The new law also applies to second-hand assets you acquire. Generally, the only assets that are not eligible are those that have their own specific tax depreciation rules (such as horticultural plants, buildings, and in-house software). Eligible assets must cost less than $20,000. There are a number of key points to note with this threshold: • The threshold applies on a per-asset basis. Therefore, there is no limit on the amount you can spend under this new measure. For example, you could purchase three small vehicles each worth $15,000 for your business (totalling $45,000) and each vehicle would be able to be immediately claimed as a tax deduction, as the value of each is below $20,000. When purchasing items in bulk, ensure that each asset is individually itemised on the invoice/receipts you receive from the supplier. • The threshold is GST-exclusive. Therefore $22,000 when GST is factored in, with the GST component claimed on your Activity Statement if your business is GST-registered. • The threshold applies to the asset’s cost, not your outof pocket cost. If your business purchased a $25,000 motor vehicle for example, and received $8,000 for a trade-in, the new vehicle would not be eligible for the new $20,000 write-off despite you being only $17,000 out-of-pocket. The threshold is based on the cost of the asset purchased. What’s the Benefit? To clear up one common misconception, the new $20,000 instant asset write-off will not result in an ATO refund for the amount of the asset purchase. Rather, the cost of the asset can be totally written-off (i.e. its total cost claimed as a tax deduction) in your year-end tax return. Therefore, instead of a deduction for a $15,000 asset, for example, being spread over a number of years (as it would have been under the old law, as the asset cost more than $1,000), the deduction under the new law is brought forward and claimed entirely in the year the asset is acquired and used. This deduction then reduces your business’s taxable income and the amount of tax that is required to be paid. Thus the new measure essentially provides cashflow relief to your business by bringing forward your deductions, rather than having them spread out over a number of years. With cashflow being a major cause of small business failure, the new law is most welcome. pindaramagazine.com.au Pindara Magazine 111
Pindara Private Hospital Magazine - Issue Five
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