With the end of financial year (EOFY) fast approaching, now is the perfect time to take stock, balance the books, and get ready for the new year ahead.
Given that Australia’s economy is expanding fast and unemployment is at its lowest level since 1974, many savvy business owners will be looking to maximise their deductions so they can set themselves up for success.
After all, you often have to spend money. And depending on your individual situation, EOFY might be the perfect time to make the most of one of the best tax breaks available for Australian businesses: the instant asset write-off.
How the instant asset write-off works
The instant asset write-off is a bit like tax depreciation on steroids, in that it lets your business claim a deduction for the full amount of an asset in the financial year in which it was purchased, rather than over several years.
Let’s imagine your business has a net taxable income of $240,000 and you currently pay company tax of 25%. Your total tax payable would be $60,000 (0.25 x $240,000).
However, if you buy $75,000 worth of eligible assets during the financial year, you’ll reduce your taxable income to $165,000 ($240,000 – $75,000). So your total tax payable is reduced to $41,250 (0.25 x $165,000).
Temporary full expensing
Temporary full expensing has been around since 2011, but with a threshold for the value of the asset to be deducted. However, following the 2021 federal budget, the dollar limit for most qualifying capital assets was temporarily removed to stimulate spending.
As a result, eligible businesses can purchase assets for any amount (excluding vehicles – see below) and write off the expense in the current year.
What’s more, if your business has an aggregated annual turnover of less than $50 million, you can also claim a deduction for any second-hand assets purchased. There are also no limits on the number of capital assets you can acquire.
Temporary full expensing was originally due to expire at the end of this financial year. However, following this year’s federal budget, it will now continue until 30 June 2023.
Is your business eligible?
There’s a very good chance your business is eligible for temporary full expensing, given the high turnover threshold of $5 billion.
While most assets bought for business purposes are included in temporary full expensing, there are car cost limits – which apply to passenger vehicles designed to carry a load of less than one tonne and fewer than nine passengers.
The cap for the 2021/22 financial year is $60,733.
Please note that this is general advice only. Speak to a tax professional to see what sort of tax deductions would apply to your personal situation.
Need a business loan or asset finance? NMC Finance is an experienced commercial finance broker and can help. Contact Nathan Coad on 0498 766 639 or firstname.lastname@example.org to find out more.