It was back in the news again from this year’s budget, but what does the small business $20,000 tax break mean now that we are closing in on tax time?
SMEs were put front and centre of Scott Morrison’s recent budget speech. According to the Treasurer, SMEs were going to drive jobs growth, and a central part of that was the continuation of the popular instant asset write-off, allowing small businesses to claim back purchases of up to $20,000. So what is it?
What is the $20,000 tax break?
Businesses, who pull in less than $2 million, can claim tax deductions for an unlimited number of sub-$20,000 purchases before June 30, 2017. This is instead of having to claim them as deductions spread over several years. This temporarily replaces the previous instant asset write-off threshold of $1000.
It’s important to note that this has been extended to include businesses with a turnover of up to $10 million but that change won’t come into effect until July 1.
That means up to 90,000 businesses will (from next financial year) access the write-off that couldn’t before. But remember it’s just for the one financial year, between July 1, 2016 and June 30, 2017, for businesses with up to $10 million in revenue.
The scheme was a hit with SMEs last time around. Businesses made claims worth almost $800 million in the past financial year which was almost double that of the previous year.
More than 40,000 additional businesses have instantly written off assets in the 2014-15 year as compared to the year before.
It also comes hand-in-hand with the announcement that SMES will soon enjoy more tax cuts. Small business will now pay the lowest company tax rate of 27.5 percent from July 1.
Do I get it?
If you are a registered business (you have an ABN) and do less than $2 million. Remember the extension to $10 million won’t apply til the 16/17 financial year. There are few other conditions, so check with your accountant.
What can I buy?
Basically anything that you use running your business including software, coffee machines, printers, photocopiers, tools, welding equipment, security systems, computers, hot water units, and air-conditioning units.
What can’t I buy?
Anything that’s more than $20,000. It won’t get the instant write-off, but it can be written off over a longer period. Those assets over the threshold can be bundled together and depreciated at the same rate (15 percent in the first year and 30 percent each year thereafter).
There are some things that are a no-no including software developed in-house so check with your accountant first.
Can I start shopping?
Not surprisingly, the Institute of Public Accountants (IPA) recommends getting some tax advice first, and from an accountant rather than bailing up the pimply shop assistant in the computer section of JB Hi-Fi.
“Retailers are well and truly on the bandwagon with many promoting sales to take advantage of the good news,” IPA general manager technical policy, Tony Greco, said. “However, it is not the retailer’s job to be advising on tax benefits or tax implications.
“Small businesses should take advantage in the lead up to the end of the financial year, but only if it is in a fiscal position to do so.
“If a business is not making a profit, there is no advantage in purchasing assets it cannot afford. The write-off only applies as a deduction; it is not a cash-in-the-hand.
“Having just an ABN does not mean you are automatically eligible. There are complex tax rules which could cause deductions to be denied.”