The accounting firm said businesses need to be aware that only small businesses can claim the deduction so the business must have an aggregate annual turnover of less than $2 million.
It also warned small businesses not to let the generosity of the tax break override their commercial interests.
“This tax break is ideal for those businesses which were planning to purchase assets anyway or have a real business need to invest,” said H&R Block.
“Remember, there’s no such thing as free money. You have to spend a dollar to get 30c back (or 28.5c after 1 July) so make sure those capital purchases fit with your overall business plan.”
It is also important, H&R Block said, that businesses realise the asset must be valued at $20,000 or less to qualify for the instant deduction, otherwise the asset will be depreciated over a number of years as per the current tax rules.
“And don’t forget those extra costs which you might incur to get an asset into a state where it can be used in the business,” said the accounting company.
“If you spend $19,500 on an asset but have to spend another $1,000 on installing the asset to make it useable, you won’t qualify.”
H&R Block warned that the ATO will be watching closely and will devote compliance resources to checking claims so business owners should avoid the temptation to bend or break the rules in order to claim the deduction.
The firm’s tax communications director, Mark Chapman, said whether it’s some new computer equipment, a new car or perhaps a coffee machine for the office kitchen, now is a great time for small business to go out and make those capital purchases.
“Best of all, with the tax break effective from last night, businesses can make the purchases before the end of the current tax year and see an almost immediate reduction in their tax liability,” he said.
[quote name=”Eric Taylor”]Just like I always have done, my first question to any clients who asks about spending money is “do you need it?”. The only change here is that a small business will get up to a $6,000 tax reduction this year, rather than over a number of years. They are still $14,000 out of pocket (or increased debt). The change is only in he timing. Do not spend what you cannot afford.[/quote]
Well Said Eric, Couldn’t agree more.
Here, here! Mark & Eric have both shored up advisors’ concerns regarding tax breaks vs cashflow. Whilst we all truly welcome our government’s initiatives for small business & whilst every tax dollar legitimately saved is always welcome for every business owner, the out of pocket cost i.e. the real cost after the tax deduction is very often shelved by ‘tax deductible’ promoters. The end cost is in fact exacerbated if the asset purchase is funded via a loan instrument; here again, only a portion of the interest cost of the funding is actually returned as tax savings; the balance of up to 70% ends up coming out of the business owners pocket(in some cases even more – for example, if a sole trader or partners in a partnership end up with very low taxable income). In appreciation of the generous tax breaks bestowed this budget, let’s also take this opportunity to revisit every decent advisor’s mantra “Consider cashflow first; a tax deduction is always a secondary benefit”.
Just like I always have done, my first question to any clients who asks about spending money is “do you need it?”. The only change here is that a small business will get up to a $6,000 tax reduction this year, rather than over a number of years. They are still $14,000 out of pocket (or increased debt). The change is only in he timing. Do not spend what you cannot afford.