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Are you eligible for the $20,000 instant asset tax write-off?

When it comes to business, cash (flow) is king. As part of your yearly tax planning activities with your accountant or business adviser, you should be kept abreast of opportunities to capitalise on government measures designed to support the small business sector.

The federal government’s $20,000 instant asset write-off scheme, introduced in the 2015 Federal Budget, allows businesses to immediately deduct the full value of every asset purchased (subject to conditions) to the value of $20,000, instead of claiming the deductions over a number of years.

The scheme is available to businesses turning over up to $2 million annually until 30 June, 2017 – so there’s still time to benefit if you’re planning a significant asset purchase.

And in the recent 2016 Federal Budget, the turnover threshold was increased to $10 million from 1 July 2016. Now even more businesses can get an immediate tax deduction on asset purchases up to $20,000 (rather than having to write them down over several years). You’ll get 28.5 cents back on purchases made before 30 June 2017.

In addition, assets valued at $20,000 or more can continue to be placed in the small business simplified depreciation pool, and depreciated at 15% in the first income year and 30% thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).

Are you missing out on an opportunity to bring forward deductions, and therefore improve cash flow for your business?

Read on to learn more, or contact The Practice on (03) 8888 4000 or info@thepractice.com.au to discuss your situation in more detail.

THE FINE PRINT

Depreciating assets

A depreciating asset is an asset used by a business that has a limited effective life and is expected to decline in value over the period you use it.

What’s included:

  • Work vehicles
  • Office or shop furniture & fittings (eg new tables for a café)
  • Kitchen equipment, display screens, air conditioners, signage
  • IT hardware: desktop computers, photocopiers, printers
  • Plant and equipment
  • Sheds or storage containers for storing equipment
  • Tradesmen’s tools and machinery

What’s excluded:

  • Land, certain intangible assets (goodwill), items of trading stock, and (some) computer software are not depreciating assets
  • In-house software intended to be claimed under the software development pool rules

Tips

  • Never take on a debt just to chase a tax deduction – only use it for legitimate purchases that will help your business grow (ideally, only use this for purchases you were already planning to make)
  • If your business is expected to make a profit next year or the year after, then you may be better off waiting to use the deduction in those tax years
  • Applies to the purchase of both new and second-hand assets
  • Assets that cost $20,000 or more can continue to be placed in the small business simplified depreciation pool.

Traps

  • This is a limited time offer running from budget night until 30 June 2017
  • This is a tax deduction, not a grant or allowance. If your business is not making a profit, you won’t be able to benefit from a tax deduction
  • Be sure you meet the ATO’s definition of a ‘small business’: an individual, partnership, trust or company with an aggregated annual turnover of less than $2 million
  • If you’re not registered for GST, the $20,000 includes GST – this may push you over the $20k threshold
  • Under $20,000 does not include GST
  • Private v personal use – if the asset is partly used for personal purposes, it can be added to the GST component, which can push you over the $20k threshold

Summary

For small businesses that were already planning to make a purchase, there’s still time to benefit from this opportunity to bring forward deductions and improve cash flow.

A proactive accountant should review this with you as part of a yearly tax planning program. After reviewing your position for the coming year, you may decide to bring forward an asset purchase that was planned for later in the year.

But remember: never undertake expenditure just to receive a tax benefit – always ensure there is a commercial benefit first and foremost. Scratch the surface of that annoying business owner bragging that they ‘don’t pay any tax’ and you’ll find it’s because they’re not making any money. Focus on your core business, and enjoy any tax benefits that come your way – but never chase them.

Contact us on (03) 8888 4000 or info@thepractice.com.au to discuss your situation in more detail.