There is no doubt that Joe Hockey’s second Budget was good for small business, including printers. The Budget will deliver tax cuts for small business. For small businesses with turnovers of less than $2m a year, the tax rate will fall from 30 per cent to 28.5 per cent.
The big item in the budget is the instant asset-write off for businesses with turnovers of less than $2m a year. The write-off allows these small businesses to claim back purchases of up to $20,000 immediately instead of having to claim those purchases as deductions spread over several years.
This change in the Budget was a big increase from the previous asset write off threshold of $1000.
So any tools up to that value, like for example computers, can be written off straight away. Anything over $20,000 can be fully written off over a longer period and depreciated at 15 per cent in the first income year, and 30 per cent per year thereafter.
This means you can write off items like IT hardware such as desktop computers, printers, scanners and photocopiers, as well as furniture and fittings, signage, air conditioners, work vehicles like for example a $19,999 ute, storage containers for storing equipment and any suitable equipment if the workplace has a kitchen.
In addition to that, if the depreciated value of your existing assets in a ‘general pool’ total comes out to less than $20,000, the entire balance can be deducted immediately.
The Budget also extends an FBT exemption to all work related portable electronic devices. The current legislation already exempts these devices, but it is limited to only one device that performs the same function for each employee. Under the new rules, there is an FBT exemption for the printer who provides say both a laptop and a tablet for an employee.
Start-ups will be able to immediately deduct costs. Small businesses can also expect to see the depreciation allowance accelerated. And it will contain measures to make it easier for small businesses to raise equity via crowdfunding although this is not as great as it’s cracked up to be. All the government is doing here is simply providing funding to ASIC to streamline the way crowd-funded equity is reported to them.
The Budget will also allow businesses to immediately deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice.
This is a change from the current rule where some professional costs associated with a new business start-up are deducted over a five year period. This measure will apply from the 201516 income year.
That said, the Budget needs to be put in context. Accountants are saying that businesses shouldn’t rush into anything. For a start, it is better to be careful before the scheme passes parliament, if at all.
Secondly, you need taxable profits to offset the claims against. If you don’t have taxable profits, there is no point going out and spending that money. So if the business is only expected to make profit next year or the year after, there is no point making the claims now. You would be better off waiting to do it in those tax years when there is a profit.
Third be clear this is not a $20,000 refund, it is an immediate writedown. So if you spent $20,000 on a ute for instance you would not get $20,000 back, your taxable income would be reduced by $20,000, so you would save whatever your rate was, for example on a 28.5 per cent rate you would save $5,700.
Also, be careful about bending any rules. The Australian Taxation Office will no doubt be watching closely to pick up any rorts. We can expect the ATO to invest heavily in compliance to scrutinise all claims.
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