Australia’s largest prepare of tax returns, H&R Block, has warned of traps in the Federal Budget’s introduction of a $20,000 instant tax deduction for asset purchases by small businesses.
Effective immediately, businesses can buy any items of machinery or equipment for use in their business provided the cost of the asset is less than $20,000. Better still, the tax break is available for all eligible purchase until June 30, 2017.
Mark Chapman, Tax Communications Director with Australia’s largest firm of tax accountants, H&R Block, welcomed the move. “Whether it be some new computer equipment, a new car or maybe a new coffee machine for the office kitchen, now is a great time for small businesses to go out and make those capital purchases that might have been on the ‘wish-list’ but where the time just never seemed quite right.
“Best of all, with the tax break effective from last night, businesses can make the purchases before the end of the current tax year and see an almost immediate reduction in their tax liability”, he added.
However the generous tax break is likely to tempt some business owners into making mistakes. Here are some key tips to prevent the tax break going sour.
• Only small businesses can claim the deduction. That means that to qualify, your business needs to have an aggregate annual turnover of less than $2 million.
• Don’t let the generosity of the tax break override your commercial instincts. This tax break is ideal for those businesses which 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 spend a dollar to get 30c back (or 28.5c after 1 July) so make sure those capital purchases fit with your overall business plan. Mark Chapman commented, “If you’re not sure whether now is the 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”.
• Only assets valued at $20,000 or less qualify for the instant deduction. So, if the value of the asset is greater than $20,000, the asset will be depreciated over a number of years, as per the current tax rules. And don’t forget those extra costs which you might have to incur to get an asset into a state where it can be used in the business. If you spend $19,500 on an asset but have to spend another $1,000 on installing the asset to make it useable, you wont qualify.
• To qualify, you must actually be in business. Simply having an ABN isn’t enough.
And finally, a warning:
• The generous nature of this tax break means that some will be tempted to bend or break the rules in order to claim the deduction. The Australian Tax Office will be watching closely and will no doubt devote compliance resources to checking these claims.
H&R Block can help businesses to stay on the right side of the law by advising whether your business is eligible and also whether the asset you’re interested in purchasing qualifies.
Source: H&R Block
