Poor cashflow management is the largest cause of small business failure in Australia, and in FY17/18 over 50 per cent of small businesses started the year with a negative cashflow balance. So, as the new financial year approaches, we’re reviewing one of the smartest ways to revitalise your cashflow levels this EOFY – the $20,000 asset tax write-off scheme.
In 2017, over 79 per cent of small-business owners said they didn’t completely understand the tax benefit. As a result, over 60 per cent of didn’t capitalise on the opportunity.
Here we tackle your most frequently asked questions surrounding the scheme.
What is the $20,000 instant asset tax write-off scheme?
The scheme allows businesses with an annual turnover of up to $10 million to purchase assets up to the value of $20,000 before 30 June 2018 and write-off the total depreciable amount this year.
Effectively, instead of spreading the depreciation across the life of the asset, the scheme allows you to bring the tax benefit forward.
Are you eligible?
Small businesses with an aggregated annual turnover of less than A$10 million are eligible for the tax benefit. An aggregated turnover includes the turnover of the business plus the annual turnover of any affiliates or connected entities.
What assets can you claim?
Income producing assets up to the value of $20,000 purchased and ready for use before 30 June 2018 can be claimed under the scheme in this year’s tax payable amount.
Is the cost of the asset inclusive of GST?
If you are registered for GST, the cost of the asset excludes GST. If the asset is $21,000 including GST, the cost will drop to $19,090 exclusive of GST, meaning it is now below $20,000 and can be written off under the scheme.
If you are not registered for GST, the total cost of the asset is inclusive of GST (if your annual turnover is less than $75,000 then you are not registered for GST).
Does the cost of the asset include installation costs?
Yes, the cost of the assets includes the amount you paid for it as well as any additional costs you spent on transporting it and installing it ready for use. For example, if a Doctor bought a new medical laser system for $19,000 excluding GST and paid $4000 to have the system installed, the total cost of the asset will be $23,000. Therefore, the asset cannot be claimed under the scheme but instead will move to the small business asset pool.
Can you claim an asset that you use for both personal and business purposes?
Yes, if the total cost of the asset is under $20,000. When a business purchases an asset it may have some private use, for example a car. Assume the car is $22,000 excluding GST and will be used 80 per cent for business and 20 per cent for private. $22,000 x 80 per cent = $17,600 so the business use portion is $17,600 which is below $20,000, but the legislation says that it is the total cost of the asset excluding GST regardless of the business use percentage. As the total cost is $22K the asset cannot be written off immediately, and will need to go into the small business asset pool.
If you don’t have the cash available, is it worth finding a business loan to capitalise on the tax incentive?
It is not uncommon for businesses to have very stable levels of growth, but weak cashflow balances. If you’re one of these businesses, a business loan, or better, a line of credit, may be the solution for you. The business loan coupled with the tax benefit could be the adrenaline your cashflow needs. We recommend speaking to your tax agent first to decide whether the opportunity is right for your business.
Government initiatives supporting small businesses are few and far between, and the $20,000 asset tax write-off scheme is one opportunity that may not be around for much longer. Now that we’ve equipped you with the knowledge and tools to capitalise on the tax benefit, go out and use it, and together we can push the government to continue their commitment to small businesses to bridge the cashflow gap.
Martin Kudelas, Head of Credit – Australia & New Zealand, Spotcap