Don’t be a tool when it comes to in­stant kick

The West Australian - - YOUR MONEY - Neale Prior Re­pay­ment

Tradies and other small busi­ness own­ers have been warned to not rush to blow $20,000 just to get a quick tax de­duc­tion for the 2017-18 fi­nan­cial year.

While it can be ap­peal­ing to think they we’re sav­ing on tax bills, the tax re­fund from the ac­claimed in­stant as­set write-off is a lit­tle over one-quar­ter of what the busi­ness operator has to fork out to get the de­duc­tion.

This is be­cause the Fed­eral coali­tion has been suc­cess­ful in not only con­tin­u­ing the gen­er­ous write-off scheme but also in get­ting sup­port for cut­ting the small com­pany tax rate to 27.5 per cent.

Accountant Michelle May­nard said many busi­ness own­ers were mo­ti­vated by tax de­duc­tions be­cause they were un­der the wrong im­pres­sion they were re­funded a dol­lar for each dol­lar spent.

The Carbon Ac­coun­tants part­ner said a per­son op­er­at­ing their busi­ness of­ten had in­come re­duced by de­duc­tions to the ex­tent that their tax bills were based on the con­ces­sional com­pany rate of 27.5¢ in the dol­lar.

“An as­set that costs $20,000 will only re­sult in a tax re­fund of $5500,” she said.

And she warned the in­cen­tive la­belled the in­stant as­set write-off was any­thing but in­stant in pro­vid­ing its mod­est re­turn on the money spent.

The cash ben­e­fit of any write-off is not re­turned un­til the tax re­turn is lodged and any re­fund­able amounts were sent to the busi­ness operator.

Ms May­nard warned that busi­ness op­er­a­tors needed to keep the de­lay in mind when con­sid­er­ing equip­ment pur­chases, their fi­nan­cial sit­u­a­tion and any tax re­funds that might ease the bur­den.

“This can some­times be up to 11 months af­ter the fi­nan­cial year has ended,” she said.

In the Fed­eral Bud­get three weeks ago, Trea­surer Scott Mor­ri­son fur­ther ex­tended the scheme un­til the end of the 2018-19 fi­nan­cial year af­ter win­ning wide­spread sup­port from the small busi­ness lobby for the re­laxed tax rule.

The $20,000 write-off has been a Prin­ci­pal

Plus: In­ter­est To­tal re­pay­ment Less: Tax re­fund Af­ter-tax cost flag­ship small busi­ness pol­icy of the Gov­ern­ment and is seen as an ex­cel­lent op­tion for small busi­ness op­er­a­tors need­ing to up­date or re­place nec­es­sary equip­ment.

It by­passes de­pre­ci­a­tion sched­ules and tax rules that gen­er­ally re­quire busi­ness as­sets to be de­pre­ci­ated at a rate in line with their ac­tual lifes­pan, mean­ing de­duc­tions for big equip­ment pur­chases can take years to flow through to a busi­ness’ bank ac­counts..

Such de­layed write-offs might be man­age­able in big cor­po­ra­tions with so­phis­ti­cated fi­nance, but big equip­ment pur­chases can place stress on the cash­flow of smaller busi­nesses.

A quicker write-off can re­duce some of that stress.

How­ever, Ms May­nard said most small busi­nesses funded as­set pur­chases with fi­nance that would re­quire re­pay­ments and in­cur in­ter­est bills over sev­eral years.

She said these re­pay­ment com­mit­ments could con­tinue long af­ter the rel­a­tively mod­est re­fund un­der the in­stant as­set write-off had been re­ceived.

“While in­ter­est on fi­nance is also de­ductible for small busi­nesses, the tax de­duc­tion is still only a pro­por­tion of the over­all cost,” she said.

The en­tire pur­chase price of the as­set must be less than the $20,000 cap to qual­ify for the in­stant as­set write-off scheme, the tax of­fice says in guid­ance notes.

If a tradie buys a $40,000 ute that is used 40 per cent of the time for her busi­ness, the sum of $16,000 is added to the de­pre­ci­a­tion pool of her busi­ness and writ­ten off over sev­eral years.

As­sets that cost less than $20,000 can be writ­ten off in the year of pur­chase to the ex­tent they are used for busi­ness pur­poses, mak­ing most tool and of­fice equip­ment up­grades sub­ject to the scheme.

A $6800 printer used 80 per cent for busi­ness would at­tract a $5440 in­stant write-off, ac­cord­ing to the tax of­fice.

AN AS­SET THAT COSTS $20,000 WILL ONLY RE­SULT IN A TAX RE­FUND OF $5500.

Year 1

$265 $150 $415 $41 $374 Year 2

$3341 $1641 $4982 $5951 +$969 Year 3

$3655 $1327 $4982 $365 $4617 Year 4

$3998 $984 $4982 $271 $4711 Year 5

$4373 $609 $4982 $168 $4814 Year 6

$4368 $199 $4567 $55 $4512 To­tal

$20,000 $4910 $24,910 $6850 $18,060

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