| The end of the 2017 financial year is fast approaching (too fast!) so it’s time to start getting your ducks in a row and get organised.
With the Small Business Tax Break still eligible for the 2017 tax year, now is a great time to buy new or replacement IT hardware to avoid some of that company tax you really don’t want to pay. With $20,000 per item! it’s a great opportunity to update and upgrade. However, to take advantage of this benefit you need to place orders and get the ball rolling before the end of June.
Have a read on below for some specifics about what this all means, then give us a ring and have a chat about where your business is heading in the next 12-months, and we can recommend some smart purchases to plan for the future.
P.S. read on for more information about what the tax break is and how it can benefit you |
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| A short disclaimer: we are not accountants, and as such are not trained in the dark arts of tax and finance, so this information is general and only “in our experience”.
For the specific details of deductions, depreciation and what tax benefits you may qualify for, please speak to your accounting professionals. |
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Small Business Tax Break – what is it?
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| Historically, capital purchases (of over $1,000 in value) could not be fully deducted from your declared profit, as the items retain their value over a period of 3 years. Think of this like a new car: if you bought it today and sold it tomorrow, it’s still worth majority of its original value tomorrow; therefore a business could only deduct the depreciation of the item, over the span of 3 years.
As a part of the Australian Budget in 2015, a Small Business Tax Break was introduced, allowing small businesses to immediately deduct the full value of depreciation on new individual items under $20,000. This means instead of only being able to deduct a small percentage of that new car as depreciation, you can now deduct the whole lot in the first year, provided the purchase is $20,000 or less. |
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Why do I care about this?
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| As a successful business-person, you’ve no doubt had a great year and have many thousands in declared profits – and now you are wondering whether you can avoid paying 30% company tax on all that money! And the answer is: maybe. Let’s do a working example:
At the end of June your business has declared $100,000 in declared profits – well done! Now the ATO wants you to pay company tax at 30% flat-rate on that money, so you stand to end up with $70,000 in your pocket after a $30,000 tax bill; how sad.
Let’s consider that maybe your server is ageing, and you will need to replace it in the next 6 months or so anyway – and for the sake of round numbers, let’s say that will cost you $18,000 out of pocket for the hardware. Due to the Small Business Tax Break, if you were to make that purchase before the end of June you would be able to deduct the entire $18,000 from your declared profits (not just the depreciation), making your effective profit only $82,000 now. You also, unfortunately, have to spend the $18,000 on the server.
Now that your profit has dropped to $82,000, you only pay 30% on that amount, which is $24,600. Once you’ve paid our bill for $18,000 and the taxman, you therefore end up with $57,400 in your pocket. This means that by purchasing the $18,000 server before the end of June, you end up with only $12,600 less in your pocket – so the server really only cost you $12,600! |
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This seems too good to be true.
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| Well it partly is and partly isn’t: as they say, there’s no such thing as a free lunch.
It’s a great benefit because it allows businesses to outlay larger amounts in the short-term and grow faster, stimulating the economy, without worrying about having lots of captial tied up in assets that are slowly depreciating.
However, bear in mind that by claiming the full amount of the deduction in the first year, you can no longer claim the remaining depreciation in future years. So you aren’t really magicking “free money”, so much as having it earlier than usual. |
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So I should go and buy stuff I don’t need?
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| No way Jose! You still have to spend the money, so buying things you don’t need is crazy. However, if there are things you legitimately need, and expect to need them in the near future, then it can be a smart way to reduce your impending tax bill by investing in your own future, and in the local economy. |
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What sort of things could I buy?
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All businesses are different and have different needs from technology, so it’s a hard one to answer. However, here are a few ideas for things that could apply to you:
- Replacement server – if your server warranty has expired or will expire in the next 3-6 months. This is often the single biggest IT outlay for a small business, so can be a great deduction to make.
- Additional workstations – if you expect to be growing in the near future with new hires or new offices, putting a plan in place to procure the hardware early can be a good investment.
- Replacement workstations – if your workstations are ageing and are feeling out of date or slow
- Upgraded or additional peripherals – replacement or additional screens, keyboards, phones and other “desk items”. Though not hugely expensive items, they often get overlooked.
- New printer / scanner / copier – if you are starting to outgrow the features of your current machine, or don’t even have one, this can be a good item to put in place or upgrade
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I still don’t know what to do.
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| No worries, that’s what we are here for! We just want your business to do its very best, so if you’re still unsure whether you need anything then give us a call and we can have a chat about it.
Just remember: the purchases need to be made before the end of June, so make sure to let us know ASAP so we can orders placed and things organised in plenty of time. |
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