ONE of the most effective tax breaks of recent years has been the instant $20,000 asset write-off scheme for small businesses.
The good news for small businesses is the Treasurer announced in the 2017 Federal Budget that the scheme, which was due to end on 30 June 2017, will be extended for a further year and will now expire on 30 June 2018.
H&R Block Tasmanian manager Steve Hinton said under that tax break, small businesses were able to claim an immediate tax deduction for all assets acquired for use in the business up to a value of $20,000.
“This could include anything from computer equipment to a coffee machine for the office kitchen,” he said.
“The deduction isn’t a one-off as all qualifying purchases will count.”
Motor vehicles are included within the scope of the scheme, so provided the vehicle you’re interested in costs less than $20,000, you can use the write-off to claim an immediate tax deduction.
When the extended scheme ends on 30 June 2018, the write-off limit will fall to a far less generous $1000.
Here are some tips and traps on buying vehicles and using the small business asset write-off:
The tax break is only available to small businesses. The definition of a small business has been extended to include all businesses with an aggregate turnover of less than $10 million (it was previously $2 million). So, tens of thousands of extra businesses are now able to take advantage of the tax break as it enters its final year.
In practice, many vehicles will substantially exceed the $20,000 threshold. Assets that cost more than $20,000 do not qualify for the immediate tax break.
These assets must be written-off over their effective lives. You may be able to get a second hand vehicle for less than $20,000, in which case you can access the tax break since second hand assets are included.
Don’t let the generosity of the tax break override your commercial instincts. This tax break is ideal if you were planning to purchase assets anyway or have a real business need to invest. But remember, there’s no such thing as free money. You have to outlay cold, hard cash in order to get the tax element back, so make sure any capital purchases fit with your overall business plan.
Talk to your accountant. If you’re not sure whether now is a good time to make a purchase or indeed whether to make a purchase at all, have a chat to your accountant who will be able to quantify the advantages and disadvantages for you.
Beware of private use. To claim the full deduction, the asset has to be used wholly in your business. If there’s an element of personal use, you can still claim the deduction, but it needs to be pro-rated to reflect the element of personal use. So if you spend $10,000 on an asset which is used 50 per cent privately, you can only claim a deduction for $5000.
For more information, contact H&R Block by phoning 13 23 25 or visit hrblock.com.au.