Posted on Leave a comment

How the Small Business instant write off works

Small business can now instantly expense the purchase of assets for up to $20,000

In this week’s episode, we’ll explore how this can benefit your small business and why you’ll want to cash in.

Who is eligible?

Any small business who purchases an asset up to the value of $20,000.

The Australian Taxatation Office and Commonwealth legislation defines a small business as an entity who has less than $10 million turnover (or gross sales).

How does it work and why is it so different to the past?

The small business instant write off is an Australian Government initiative. Assets purchased after the 12th May 2015 can now be instantly expensed in the year it is purchased.

This effectively reduces your taxable income as a once off by the total value of the asset. 

This treatment significantly differs to the past, where we had to write the asset off over the life of the asset in the form of depreciation.

Why is it so important to small business?

Often times, in order to grow your business, you need to spend significant sums of money on assets that are required to take your business to a new level.

For example, when you started out, you might not have been able to buy new, efficient equipment, but had to rely upon second hand equipment purchases.

As your business gets off the ground, and starts to make money, you might have the available funds to buy newer equipment that either expands or increases your efficiency (and longer term profits).

In the past, you’d have to pay tax on the profit your business made for that year, even though you no longer have the cash from the profit (because you’ve bought new equipment). 

That’s why this new rule is really helpful for small business – you can improve your business with new assets – and accurately reflect the cash you have in the business via taxable income – and not have to worry about a big tax bill resulting from your operating profit as well.

What does it not mean? 

The biggest misunderstanding or myth we hear is that the government will give you up to $20,000 in tax back in the form of a tax refund. 

It also doesn’t reduce your tax payable for the price of the asset.

Let’s be clear:

This incentive does not affect the calculation of tax payable on your taxable income. This is still calculated the same as always. 

This is just a change in how we can calculate your taxable income, by increasing the volume of deductions you have available to you.

Need to know more?

To find out how the small business instant asset write off applies to your business, please get in contact here.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.