Example Assume Mike is a sole trader with a turnover less than two million dollars but is in the top marginal tax rate of 47%. Mike purchases a small vehicle for $19,000 solely for use in his business. Old Law As the vehicle exceeds the $1,000 instant writeoff threshold, it would be placed in the small business pool, whereby it would be depreciated at 15% in the first year, and 30% in subsequent years. This would mean that in the first year, Mike’s taxable income would reduce by $2,850 ($19,000 x 15%) resulting in a tax saving of $1,339 ($2,850 x 47% tax rate, excluding Medicare). The remaining value of the vehicle would then be claimed at 30% in subsequent years until its value fell below $1,000 at which point it could be written-off. New Law If Mike purchases this vehicle during the period the new law applies, as it does not exceed the instant write-off threshold of $20,000, he will receive a tax deduction for the entire $19,000 cost of the vehicle. This will reduce his taxable income by this amount, resulting in a tax saving of $8,930 in the year of purchase ($7,591 more than under the old law). Strategies With the introduction of this new measure, small business owners may wish to consider the following strategies going forward: • Leading up to 30 June 2016 and 30 June 2017, you may wish to bring forward any planned expenditure on depreciable assets to before 30 June and therefore improve your year-end tax position. Bear in mind that to claim a tax deduction in the year of purchase, the asset must also be installed ready for use in your business or actually being used by 30 June. • This new, generous write-off threshold adds to the many tax benefits of being a small business. As we have seen, to be classified as a small business your turnover must be less than two million dollars. If your business’s turnover is around two million dollars (the Federal Treasury estimates that approximately 5,500 companies and thousands of other non-corporate entities fall into this category) it’s worth keeping a close eye on it at yearend. While we do not suggest that you avoid growing your business just to stay under the two million dollar threshold, if your turnover is nearing that mark at year-end, it certainly pays to stay under that threshold from a tax perspective – perhaps by deferring year-end invoicing, where practical, to the following financial year (post 30 June). How Do I Claim? The instant asset write-off is claimed on your tax return under the standard depreciation labels. You do not need to do anything special to claim the benefits under this new measure. The way you or your accountant complete your business’s tax return (i.e. by claiming appropriate deductions) is evidence of the write-off being claimed. All you need to do is to retain invoices/receipts evidencing your purchases. finance Darren Hagarty is a Chartered Accountant and a director of PT Partners, a progressive accounting firm based in Springwood, in Brisbane's southern suburbs. PT Partners specialises in tax advice, cloud accounting, and strategies for small and medium business, individuals, selfmanaged super funds and retirees. Visit www.ptpartners.net.au for more information. 112 Pindara Magazine 2015
Pindara Private Hospital Magazine - Issue Five
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