$20,000 small business tax write-off

May 14, 2015

Peter Cramer

Did you see front page of the Age today? (Thursday 14th) $20,000 tax deduction.

It was a Budget follow up. (My take on it – the taxpayer just didn’t get how the $20,000 tax write off works!)

Front page news – all about a small business operator who said he liked the Budget announcement concerning the $20,000 immediate write off of expenditure on plant up to $20,000.

This is the gist of what he was saying:

“I have a machine in my business that needs replacing and the $20,000 write-off means I will now go out and buy a replacement machine – this gives me the incentive to do it”.

All well and good so far.

BUT – he then said – “The cost of the machine is around $65,000 but the $20,000 will go a long way in helping…”

WOW – totally wrong I am afraid!

1. There is a cost limit of $20,000 for each item – so if the item costs more than $20,000, there isNO accelerated write-off – just the normal rules apply which would be 15% in the first year and 30% on the reduced balance thereafter until it is written off.
2. The money saved on the expenditure is calculated as follows:
   • the cost of the item (for example $18,500) times your marginal tax rate (say 30c in the $) to give a saving of $5,550 ($18,500 * 30c).
3. The Government or the Tax Office is NOT giving him back $20,000!  (Reading the article, it appeared that is what he was thinking.)
4. The tax benefit is obtained at the end of the Tax Year when you lodge your business tax return – the extra tax deduction reduces your tax bill.  In my example above, you would pay $5,500 less tax by purchasing the $18,500 item.

So just be aware of what a tax deduction or accelerated write off really means!  Certainly this is a welcome announcement by the Government – it will be of assistance to those who need plant in their business that has a cost less than $20,000.   Very good timing too – we have around 6 weeks to go to June 30!

If your business is registered for GST and the item you buy is 100% business use and includes GST – then you should be able to spend up to $21,999 on applicable plant items – as the net of GST cost will be $19,999.09.

For those of you running businesses that sell items of plant or capital items less than $20,000– you should be organising your sales and marketing team to promote sales of items less than $20,000 to your customers – they may just be in a buying frenzy leading up to June 30!

Trailers, augers, silos, computers, desks, office equipment, shop fit outs, electrical goods, small cars and vans, motorbikes (2 or 4 wheel), furniture for offices (including home offices)…are a few things that spring to mind!

Remember – you must have a business to claim this and the items you buy must be no more than $20,000 gst excl each and must be used in your business.  There is NO limit to how many items you buy provided each is no more than $20,000.

(You cannot however try to buy a $60,000 car and pay for it over 3 invoices of $20k each – or buy a tractor bit by bit all under $20k….!)

Finally – this is not legislation yet – merely an announcement.  However I think this is certain to be passed so I am very confident it will become law.