How to take advantage of the $30k small business tax break

How to take advantage of the $30k small business tax break


Buying equipment for a business can be expensive,
so it’s important that every business owner knows when and where they can write off their
company purchases against their taxes. The instant asset tax write-off offers a way
for you to claim assets your purchase — now up to $30,000 — this financial year rather
than depreciating over several years. It’s a pretty generous scheme designed to
help you reinvest in areas like equipment or stock to grow your business and become
more productive. Here’s how to get the most from it So last financial year, the instant asset write-off
was $25,000. That’s now been increased to $30,000. It’s also been extended to small
and medium enterprises with an annual turnover of up to $50 million (up from $10 million previously). This opens the tax break up to an additional
220,000 Aussie businesses. SMEs that meet the criteria can purchase
eligible assets up to a value of $30,000. You just need to make the purchase and use
the asset for your business before the 30th of June, 2020. Of course, many businesses don’t just have
a spare several thousand lying around, so borrowing is one way some choose to take advantage
of the incentive. We’d strongly caution against buying things you don’t really need,
but speak with your bank or an alternative funder like Capify to find out which assets
they’d consider financing. Any single asset under $30,000 that is purchased
for business purposes qualifies for the asset tax write-off. However, it’s important to note that only
the portion of the asset that is used for business purposes qualifies. Private use portions
are non-deductible. So, if you were to purchase a computer for
your business today for $6,000 which was 75% for business use, and 25% for private use,
you would only be entitled to claim $4,500 of the value of the computer as a tax write-off. And because the total cost of this computer
is below $30,000, the business portion would be instantly claimable in the 2019 tax return. On another note, if a business purchases multiple
assets under $30,000 in the same year, they should all qualify — even if the combined
cost exceeds $30k. Here’s another example to help clarify that
point: you could purchase a company car for $18,000 and a truck for $28,000 both for 100%
business purposes in this year. They would both individually qualify for the instant
asset tax write off in your 2019 tax return. This is despite the fact that the combined
cost of them exceeds $30,000. By the way, the cost of the asset includes
both the amount you paid and any additional amount spent on transporting it, improving
it or installing it for use. If your business purchase is over $30,000,
what’s known as the asset cost threshold, the rules are different. If the total cost of a purchase exceeds $30,000,
it does not qualify for the instant asset tax write off. This is the case even if the
portion of the asset which is claimable is under $30,000. For example, if you buy a vehicle for your
business for $40,000, that’s 50% for business purposes, you are entitled to claim $20,000.
Even though this $20k is below the instant asset write off threshold, you can’t instantly
write it off, because the total cost of the vehicle exceeds the $30,000 cap. So, you will
need to add the $20,000 cost to your small business pool and claim it later. The small business pool is where small business
owners can allocate depreciating assets to be depreciated at a rate of 15% in the year
they are added and 30% in following income years on a diminishing value basis. This is
irrespective of the overall life of the asset. This means that you essentially pool the business
portion of most higher cost assets and claim a 15% deduction in the year you start to use
the asset or a 30% deduction after the first year. However, you can deduct the entire balance
of the small business pool at the end of the income year if the balance is below the $30,000
instant asset write-off threshold. Trade-ins can be tricky.
Imagine you buy a new car priced at $35,000, but get a $7,000 trade-in for your old vehicle.
Even though you only hand over $28,000 for the new vehicle – below the tax write-off
threshold – because the full purchase price of the car is over $30,000, you won’t be
able to claim it in your 2019 tax return. It’ll have to be added to the small business
pool. It’s a fiddly scenario, so make sure you check
the ATO website to understand the rules fully. So that’s the basics of the tax break.
Here’s a quick check-list to recap: 1. If your business is eligible and has purchased
an eligible asset, you can now make a deduction on every new asset under $30,000. The entire
cost of the asset must be less than $30K, not just the business-use portion. 2. The asset can be new or used. 3. The asset you purchased was first used
or installed and ready to use in the income year you’re claiming it in. 4. You must subtract any private use proportion,
which is the proportion of the time that the asset will be used for personal use instead
of business use. 5. To find out more about the instant asset
tax write-off and what purchases do and don’t qualify, check out the government website
and speak with a tax expert for any specific advice. And click below to watch our new video: 5
strategies to improve your business cash flow. It can be tough to take time out when you’re
pulled in so many directions running the business each day. But it pays to take stock of what’s
working and what isn’t. See you there.

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About the Author: Oren Garnes

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