Are you making a profit?
- If your business isn't making a profit, you will have a much smaller benefit because you aren't currently paying tax. You will only be able to defer the loss until future years. Basically, there'll be no immediate cash benefit to your business!
It's not law yet!
- This announcement is just that, an announcement. It hasn't been passed into law as yet. We expect this to happen in the coming months, but there is always a small risk things could change.
You need to be eligible!
- To use the instant asset write-off, your business needs to be eligible. The first test is that you have to be a business – not just holding assets for investment purposes.
- The second is the aggregated turnover of your business needs to be below $2m. Aggregated turnover is the annual turnover of the business plus the annual turnover of any “affiliates” or “connected entities”. The aggregation rules are there to prevent businesses splitting their activities to access the concessions.
Consider your cashflow!
- Cashflow is more important than an immediate deduction. Assuming your business qualifies for the deduction, the most important consideration is your cashflow. But, your business still needs to fund the purchase for a period of time until you can claim the tax deduction and then, the deduction is only a portion of the purchase price.
So, what has changed anyway?
- In general, a deduction is available for purchases your business makes. What has changed for small businesses under $2m turnover is the speed at which they can claim a deduction. Before the Budget announcement, small business could immediately deduct business assets costing less than $1,000. This figure has now jumped to $20,000
- Remember, this is the price AFTER subtracting the GST portion.
What can't I claim?
- There are a number of assets that don’t qualify for the instant asset write off as they have their own set of rules. These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.
- Also, you need to be sure that there is a relationship between the asset purchased by the business and how the business generates income. For example, four big screen televisions are unlikely to be deductible for a plumbing business.
- Please note, it doesn't need to be a NEW asset. Second hand goods, purchased for your business can also be claimed.
Not sure? Get good advice.
- It’s important not to rely on the advice of the person you are purchasing from. There is a lot of misinformation out there in the market right now and it’s important to know how the concessions apply to you.
What else is new?
These changes will commence from 1 July 2015:
- Small business tax cut - 1.5% for companies and 5% tax discount for unincorporated small businesses under $2m (capped at $1,000)*
- Employee share scheme rule changes to make the schemes more attractive particularly to Start-ups able to immediately deduct a range of professional expenses required to start up a business – such as professional, legal and accounting advice.
- The way work related deductions for car expenses are calculated will change. The 12% of original value method' and the 'one third of actual expenses method' will be removed. The 'cents per kilometre method' will be modernised, replacing the three current engine size rates with one rate set at 66 cents per kilometre to apply for all cars.