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!
- 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.
- 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).
- The Government or the Tax Office is NOT giving him back $20,000! (Reading the article, it appeared that is what he was thinking.)
- 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.