OUR End of Financial Year specials and the Federal Government’s generous new depreciation rules mean massive savings are available to small businesses that invest before June 30.
Thanks to the Federal Budget, businesses that turnover less than $10 million get an immediate boost to their cash-flow with 100% write-offs on their next tax bill for assets costing less than $20,000…
Before this law, businesses had to wait up to four years to depreciate most items that cost more than $1000. The rules meant only 15% could be claimed as a tax deduction in the first year and 30% each following year.
There is no limit to the number of items that can be bought, meaning multiple purchases in the next two weeks will significantly reduce the tax profitable small businesses will be liable for when they lodge tax returns from next month.
How this can help your business (Example)
Bill owns and operates a small cropping farm, which he runs as a company on the outskirts of Melbourne generating annual revenue of $1.7 million. Bill needs new tanks and field sprayers to replace faltering old equipment that leaks and frequently breaks down.
Bill has $75,000 cash on hand but can only afford to take a maximum hit to his cashflow of $18,000 because of a large looming tax liability. He has set his sights on buying two new batching tanks and two new field sprayers – one each for fertiliser and herbicide. He could save thousands if he bought now from Trans Tank International, with savings of up to 30% on chemical batching tanks and field sprayers until June 30. For the next few week the 5000-litre batching tanks cost $5,162 each (instead of $7,675) and the 500-litre field sprayers cost $4,850 each (instead of $6,468). At these heavily discounted prices, his total cash purchase would be $20,024.
Current Depreciation Laws
Each item costs more than $1,000 – meaning they would have to be “pooled” and written off over four years – 15% in the first year and 30% each year thereafter – giving a deduction of $3,034 in the first year.
With a company tax rate of 30%, Bill’s company would get $910 of this back in tax savings at the end of the financial year. That means Bill has to wait until his cash position improves until he buys the new equipment he needs.
New Depreciation Laws
Under the new rules, which increase the threshold for each item to be written off in the year of purchase from $1,000 to $20,000, Bill can claim an immediate deduction for all the items.
With the new company tax rate of 28.5% kicking in on July 1, Bill’s company will receive $5,506 back on tax as soon as next month if he’s quick to lodge his tax return.
That’s more than a $4,596 kick to his cashflow and means Bill can now afford to buy all the equipment his business needs to maximise the farm’s productivity.
Example of small business investment
Current Law New Law Additional Benefit
Depreciation Deducton $3,034 $20,024 $16,990
Cash Flow Benefit $910 $5,506 $4,596
If Bill buys two new tanks and sprayers before June, his cash on hand will be $15,228 less than today. This leaves him plenty of cash in the bank to pay his tax bill and buy the equipment. Under the old rules and prices, Bill would have had to outlay $27,014 after calculating cashflow benefit from depreciation in the year of purchase. That’s a massive cash hit of almost $12,000 more if you take away our discounts and the cashflow benefits of new depreciation rules.
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