$20,000 for Small Businesses: Do You Qualify? And Do You Really Need It?
By Anand Shukla
Are you a small business owner turning over less than $2 million a year? Then listen up. This one’s for you.
The Australian Government announced a new measure in the 2015 Budget. Small businesses can now get an instant write-off on any asset costing less than $20,000. New or second-hand, doesn’t matter.
Quick catch: You need to buy it between 12th May 2015 and 30th June 2017. Before this, the threshold was only $1,000. So yeah, this is big.
Before I continue, a brief disclaimer
This is general info only. At the time of writing, it wasn’t law yet – just a budget announcement. Check with your advisor or the ATO before doing anything.
So how does this actually work?
Claim the write-off in the year you first use the asset. If you buy something just before 30th June 2015, you can claim it this financial year and reduce your tax bill.
Most assets qualify. Only a few don’t (I’ve listed them below).
For assets over $20,000? The old pool rules still apply – 15% first year, 30% after that.
Good news: The old “lock-out” laws have been suspended. Even if you opted out before, you can now jump back in.
But please, don’t get carried away
Here’s my honest advice. Don’t invest just for a tax benefit.
You have to spend first to get a portion back. If you don’t actually need the asset, you’re just hurting your cash flow. And that’s bad for business.
Example: If I gave you $20,000 but you had to invest $200,000 in a desert property with no water or roads – would you do it? Probably not. Same logic applies here.
A $20,000 depreciation might save you $6,000 at 30% tax. That’s nice. But it’s not a reason to make a silly purchase.
If you don’t need it, don’t buy it.
Which assets miss out?
Most things are fine, but a few are excluded. Things like:
• Horticultural plants
• Capital works (building stuff)
• Primary production assets where you already chose normal depreciation rules
• Assets leased to someone else under a depreciating asset lease
• And a couple of others
One last reminder
Look, these are still just proposed changes. The tax office hasn’t put them into law yet. Please check with the ATO before making any significant decisions, as the Treasurer mentioned them in the Budget speech.
There were plenty of other interesting announcements in the Budget. I’ll write about those another time.
For now though? The end of the financial year is coming. Time to get your tax planning hat on.
And I truly wish you every success for the coming financial year.