With the media flooded with advertising about the $20K tax deduction for small business, a local accounting firm is encouraging small businesses to make smart choices when it comes to asset purchasing.
The are only days left to purchase and install depreciable items (costing les than $20,000 exc gst) to qualify to receive an immediate 100% deduction on for the 2014/15 financial year.
However, BMO’s Kelvin Tyler is urging businesses to seek tax advice before making any impulsive decisions to splurge on unnecessary depreciable assets.
“Asset purchases should always fit with your cashflow projections, your overall growth strategy and your big picture tax planning, Mr Tyler said.
“Don’t get me wrong, we are very excited about this tax break; if it’s used correctly, it can play an important role in reducing tax liability and stimulating the economy. But it’s so important to make sure you don’t allow tax incentives to be the sole driver for your business purchasing decisions.”
He said in the days following the budget announcement, retailers were quick to launch advertising campaigns with headlines like “20K tax break on forklifts!” “Buy now to claim the 20K tax write off!”.
“Now that this budget measure has passed through the senate, the Government has joined in the media frenzy by running its own advertisements about this tax break to encourage spending on depreciable assets.
He said it was important to remember that every situation is different and timing is important.
“Items must be ‘installed for use’ by June 30, so you can’t go and order equipment that will only arrive in July and expect to get it as a deduction this financial year.
“This tax incentive continues until 30 June 2017 so, you might find that from a tax planning perspective you are better to wait to purchase the asset in the next financial year. It all depends on your business’ individual circumstances.
Also remember that a tax deduction is just that, a ‘deduction’. It’s not a refund of tax, so if you are not in a tax payable situation the small business write-off will be of little or no benefit.
He said there were a number of other favourable measures for business announced as part of this year’s budget.
There’s a 5% discount for businesses not using a company structure, company tax rate reduced from 30% to 28.5%, and accelerated depreciation for farmers, so it you haven’t already done so, it’s definitely worth seeking advice before 30 June ticks over to make sure you have the right strategies in place.”