Tax Breaks available to both small and medium businesses for the 2019 Tax Return
Instant asset write-off
Businesses can claim an immediate tax write-off and reduce their tax payable when buying new business assets, but cost caps apply.
Tip! Always discuss with your adviser whenever considering buying assets or businesses. The way these assets are described, documented and the timing of purchase are important and may impact the claiming of the immediate tax write-off. ■
Small businesses with a turnover of less than $10 million
If you are a small business with total turnover of less than $10 million, the instant asset write-off is available to you for all new or second-hand machinery, plant, cars and equipment (eg tools, display cabinets, freezers, delivery vehicles).
Cost caps apply depending on when the asset is first used or installed and ready for use.
If the time of first use or installation ready for use is between:
- 1 July 2018 – 28 January 2019: assets must cost less than $20,000
- 29 January 2019 – 2 April 2019: assets must cost less than $25,000
- 3 April 2019 – 30 June 2020: assets must cost less than $30,000.
There is no limit to the number of assets that can be claimed.
For businesses claiming GST, the tax write-off cost excludes GST.
For businesses not claiming GST, the tax write-off cost includes GST.
Note! Registering for GST is optional if total sales are less than $75,000.
This tax break currently ends on 30 June 2020. There is an expectation that the Government may extend this provision.
What about assets that are more than $30,000?
For assets costing more than $30,000 or the cost caps of $20,000 or $25,000, for the relevant periods, businesses can use the simplified tax depreciation pooling provisions and depreciate those assets at 15% in the first year and 30% each year thereafter.
If the simplified tax depreciation pool balance is less than $30,000 on 1st of July 2018 and with any pool additions until the 30th June 2019 it is still under $30,000, then this amount will be immediately written off for tax purposes.
Case study: How the instant asset write-off works
Here is a case study of how the instant asset-write-off works:
Early Bird Café is a business registered for GST with a turnover of $5m.
- On 12 December 2018, Early Bird Café paid $16,500 (and was entitled to a GST credit of $1,500) for a counter top for the new café extension which opened for business after all construction was completed on 17 January.
An immediate tax write-off of $15,000, as the counter was first used before 28 January.
- On 27 January 2019, Early Bird Café took delivery of a walk-in refrigerator, but it was not installed and ready for use until 6 February 2019. Payment of $25,300 including GST was made on 27 April 2019.
An immediate tax write-off of $23,000 as the walk-in refrigerator was installed and ready for use before 2 April 2019. Delivery and payment dates are not taken into account. The write-off is the GST exclusive value. The GST of $2,300 is claimable in the BAS return.
If the café business was not registered for GST (total sales being below $75,000) there would be no immediate tax write-off because the cost to the business is $25,300 and is more than the cost cap of $25,000.
- On 30 June 2019, the balance in the simplified tax depreciation pool was $28,500.
An immediate tax write-off of $28,500 as the balance in the simplified tax depreciation pool is less than the cost cap of $30,000.
- On 20 July 2019, Early Bird Café took delivery of a van costing $44,000 including GST funded by a bank loan.
- No immediate tax write-off as the cost of $40,000 is more than the cost cap of $30,000. Annual depreciation rules will apply to the $40,000 cost of the van. GST of $4,000 is claimable in the BAS return. ■
Ref: TaxWise Business June 2019