May and June are looming as important months for small and medium-sized businesses looking to make tax savings by investing in new plant and equipment before the end of the financial year.
The Federal Government has extended its instant asset write-off for small business entities until 30 June 2020 and increased the claimable threshold from $25,000 to $30,000 per eligible depreciating asset. It has also extended eligibility to businesses with an aggregated annual turnover of up to $50 million, up from $10 million under the previous arrangement.
This is of particular relevance to South Australia because the vast majority of the state’s 149,900 businesses are small to medium in size and fall into this sub-$50 million category, meaning they can benefit directly from the changes.
According to accounting firm BDO, popular items purchased under the scheme include cheap utes, computer equipment, pumps, mobile phones and tools such as cement mixers and nail guns.
BDO Business Services Partner David Fechner said although the extension was until the end of next financial year, tax savings could start almost immediately on purchases made before the end of June this year.
He said the inclusion of businesses with turnovers up to $50 million added considerable depth to the scheme, particularly in SA, and could also provide a timely spending spike for the local economy.
“As you get towards the end of the financial you are closer to receiving the tax benefit, or not having to pay tax so you get a better timing advantage in May or June than you will for acquisitions in July,” Fechner said.
“A classic one at that price point is motor vehicles and pieces of equipment larger than just tools.
“We would like to see it become a permanent fixture of the tax system because then it becomes a lot easier for businesses who are budgeting into the future in terms of how they might invest now versus invest later and expand.”
The scheme was first introduced in 2015 with a $20,000 threshold per item for business with an annual turnover under $2 million.
Fechner said it lowered the risk of investment because there was an almost instant return that could make a big difference to a businesses bottom line at the end of the tax year.
“But the more important thing is it certainly can make the difference between whether you are prepared to invest in expansion and growth or not,” he said.
“If you need that one extra piece of equipment or you want to put on one more rep then the fact that you are getting to claim a tax deduction against the full amount of that investment certainly affects the growth decisions.
“For a lot of businesses it also makes the difference between whether they are spending the money on maintaining old plant and tools when it would be better financially for them to invest in new equipment.”
While eligible depreciating assets purchased for more than $30,000 cannot be instantly written-off, the Federal Government has also introduced the small business simplified depreciation pool until 30 June 2020 for businesses with an annual turnover of under $10 million.
This concession allows small businesses to place assets purchased for more than $30,000 to be depreciated at 15 per cent in the first year and 30 per cent each income year thereafter. When the depreciated value reaches $30,000 or less by 30 June 2020, the remaining value can be instantly written-off.
Fechner said the simplified depreciation pool helped smaller businesses compete with larger entities.
“It has the potential to relieve the tax burden significantly for small businesses on acquisitions they have already made,” he said.
“But it would also be much nicer if those rules stayed in place and businesses were able to plan around that.”
This article is sponsored by BDO Adelaide.