Instant Write-Off Extended And Expanded
The Accelerated Depreciation measure has been extended and even expanded. Can you take advantage?
Australia is built on an entrepreneurial culture, where small businesses make up a staggering 99 percent of all businesses. To support the growth of these small businesses, the Federal Government came out with a new tax structure in 2015 that reduced rates for SMEs and also allowed them to immediately deduct the costs of new asset purchases, where each asset is worth up to $20,000.
The measure has now been extended for a further twelve months in the FY 17/18 Federal Budget and even expanded to include businesses turning over up to $10,000,000.
How businesses are using it
Small businesses that had been putting off making big ticket purchases and 'making do' with existing equipment, are using the Instant Write-off Measure to upgrade their existing equipment to improve productivity or expand into new markets.
To demonstrate how this measure can be used by a small business, The government has provided the following case study
Small business with annual turnover of less than $10 million
Small business with annual turnover of less than $10 million Sam owns and operates a small bakery, which he runs as a company in a country town in north Queensland.
Sam purchases a new rack oven for $13,750 and a new proofing cabinet for $3,500 to replace his old, worn-out equipment.
Because these assets each exceed the current $1,000 threshold, they would be included in the accelerated depreciation 'pool'. Of their combined $17,250 cost, only 15 per cent, or $2,588, would be depreciated in the first year. With a company tax rate of 30 per cent, this means that Sam's company would only get $776 back on its tax in the first year.
Under the new $20,000 threshold, Sam's company will be able to claim an immediate deduction for both the new rack oven and the new proofing cabinet, giving an immediate deduction of $17,250. With the new small business company tax rate of 28.5 per cent from 1 July 2015, Sam's company will get $4,916 back on its tax.
Under the new $20,000 threshold for accelerated depreciation, Sam's company will receive an additional cash flow benefit of $4,140.
Previous Law New Law Additional Benefits Depreciation deduction $2,588 $17,250 $14,662 Cash Flow Benefit* +$776 +$4,916 +$4,140
*cash flow benefit equals depreciation times the tax rate. Sam also benefits from the reduction in the tax rate for small companies, from 30 per cent under the current law to 28.5 per cent under the new law.
How equipment finance can help
If you do need to acquire equipment to take advantage of the instant write-off measure, but lack the upfront capital required, get in touch with Classic Funding Group to arrange fast equipment finance.
Financing the equipment on a Secured Loan (also commonly known as a Chattel Mortgage) give you ownership of the asset from the outset and may be able to be depreciated instantly. Speak with your accountant or financial advisor to see if you’re eligible for the measure and what finance structure makes sense for your business.
Running a small business is difficult enough, why not make arranging finance easier. You may even be pre-approved for up to $75,000 without having to provide financials.