$20,000 small business tax break explained - 30 June is fast approaching
By Tegan Taylor / ABC News 14 May 2015
One of the biggest announcements in this years budget was the temporary increase to the instant asset write-off, allowing small businesses to claim back purchases of up to $20,000.
What is the $20,000 tax break?
Businesses with an annual turnover under $2 million can claim immediate tax deductions for as many sub-$20,000 purchases as they make between 7:30pm on budget night, 13 May 2015 and June 30, 2017, rather than having to claim those purchases as deductions spread over several years.
This is a huge increase from the current instant asset write-off threshold of $1,000. The Federal Government has allocated $1.75 billion to fund the scheme, which will run for the next two years.
Who is eligible?
The $20,000 tax break applies to businesses that can demonstrate ongoing activity via quarterly Business Activity Statements, Small Business Minister Bruce Billson said. The business must be actively trading to be eligible for the break.
What's covered?
"If you run a cafe, it might be new kitchen equipment, or new tables and chairs," Mr Hockey said in his budget night speech. "If you're a tradie, it might be new tools or a computer for the home office. "Cars and vans, kitchens or machinery ... anything under $20,000 is immediately 100 per cent tax deductible." In other words, any asset involved in running a business is covered by the scheme.
What's not?
Assets over $20,000 are not eligible for the instant tax write-off, but can be fully written off over a longer period. Any assets over $20,000 can be added together and depreciated at the same rate. These assets are depreciated at 15 per cent in the first income year, and 30 per cent per year thereafter. If the value of the pool is below $20,000 until the end of June 2017 it can be immediately deducted too. There are a few items not deductible, including some horticultural plants and any software developed in-house by a business. Software purchased for business use, for example, an account-keeping program, can be claimed.
Accountants have also warned they expect the ATO to closely monitor the number of Australian Business Number (ABN) applications, to keep an eye on any attempt to rort the scheme.
What does this mean for you?
If you currently run or you are thinking of starting a small business, now is the time to act, according to ABC's AM program host Michael Brissenden. "The small business package is extraordinarily generous. If you were ever thinking about opening a cafe, do it now,". Buy as many espresso makers, fridges, photocopiers and lawn mowers as you like, and claim an immediate tax deduction until 2017."
However Australia Institute executive director Richard Denniss has warned small business people to be cautious of taking advantage of the scheme before it passes Parliament — if it does at all. "The scale and generosity of this proposal is unprecedented and, while the Treasurer has announced that it will begin [on budget night], history suggests he shouldn't take the Senate for granted," Mr Denniss said.
