| 02 9982 2466

Building the instant tax deduction into your business plan

With the 2014-15 financial year at an end, business owners should now be planning for a tax regime that includes a $20,000 instant asset depreciation.

Since the government’s introduction of an instant tax deduction on up to $20,000 of capital items in the May budget, business owners should integrate the new rules into their cash flow and tax planning.

The instant deduction gives business owners the ability to claim the total amount of a capital purchase up to $20,000 in one go as a tax deduction. Business owners no longer have to depreciate capital purchases with a schedule or claim partial deductions over a period of four to five years. This essentially means that an owner can bring forward deductions where they wouldn’t otherwise have been able to do so.

When building the deduction into their planning, business owners should only make capital purchases if they are productive assets. If assets do not contribute to the production of revenues, they are unlikely to be eligible as business deductions.

Owners must also understand the actual benefit of the purchase in both a cash flow and taxation sense. If they run at a loss, then the instant deduction is not very useful. The instant deduction reduces the amount a business owner is taxed on. If owners are not in profit, they can carry forward some losses but then the effect of the instant deduction is gone.

Business owners planning for this year must also be aware that the instant deduction does not apply to plants or capital works such as construction. Owners should consult their accountants rather than making assumptions in regards to this.

Business owners must know exactly what the tax benefit is if they are using the rule changes to make a purchase decision. If used wisely, the instant deduction can be a real benefit to profitable small businesses that were planning on purchasing assets. But it is best for owners to speak with their accountant to be sure.

Posted on 18 August '15 by , under Tax.

Leave a Comment

You must be logged in to post a comment.

Join Our Mailing List!

Subscribe to our mailing list to receive all the latest financial newsletter updates as well as information on important dates on our business calendar.

Recent Updates

Firm News

Self-managed super funds (SMSF) aren’t just about financial investment

Individuals may be looking to opt for an SMSF because these provide entire control over where the money is invested. While this sounds enticing, the downside is that they involve a lot more time and effort as all investment is managed by the members/trustees.

Firstly, SMSFs require a lot of on-going investment of time:

  • Aside from the initial set-up, members need to continually research potential investments.
  • It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF.
  • The accounting, record keeping and arranging of audits throughout the year and every year also need to be conducted up to par.

Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This adds up to more than 100 hours per year and demonstrates that compared to other superannuation methods, is a lot more time occupying.

Secondly, there are set-up and maintenance costs of SMSFs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fee, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses.

Thirdly, investing in SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market so that they can build and manage a diversified portfolio. Further, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if one is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super and other relevant regulations requires a basic level of understanding at the very least. Finally, insurance for fund members also needs to be organised which can be difficult without additional knowledge.
Although SMSFs have the advantage of autonomy when it comes to investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and on top of this, are required to have some financial and legal knowledge to successfully manage the fund.

Business Calender