Claiming up to $20 000 immediate deduction

Discussion in 'Accounting and Tax' started by Burramys, 13th May, 2015.

  1. Burramys

    Burramys Member

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    The federal budget provided that small business or sole trader with an ABN with a turnover of under $2 million a year can claim up to $20 000 a year. I have an ABN for a business that was a sole trader. I'm still the same sole trader, but have moved onto property and shares. One report advises:

    "The new accelerated depreciation rules run from last night until the end of June 2017.

    WHAT CAN I BUY?
    "Anything used for running your business: computers, printers, office furniture, coffee machines, kitchen equipment, cars, tools. You can use the tax write-off on as many individual items as you want.

    WHAT CAN?T I BUY?
    "Stock for your business, office software and plants will be excluded, as will marketing costs."

    If the turnover is under $2 million a year, can the above apply to people investing in property? Also, how does the term "sole trader" apply to property investors? TIA.
     
  2. sanj

    sanj Member

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    If you're running a property business then sure it would apply. Simply investing in property - no.
     
  3. D.T.

    D.T. Property Lookerafterer

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    It doesn't. Investing and business are 2 different things.
     
  4. Rixter

    Rixter $uper Investor (Retired)

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    It comes down to where one derive's their primary income from.
     
  5. D.T.

    D.T. Property Lookerafterer

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    No it doesn't, it's an ATO definition.
     
  6. Rixter

    Rixter $uper Investor (Retired)

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    Exactly DT..all allowable deductions come down to being inline with ATO definition.
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    I'm kind of hoping that I can run out and buy $19k of dive gear in the near future through my business and claim a deduction on the whole lot. Unfortunately my accountant says no, and to stop asking. :(

    In all seriousness, whilst this is nice for small business cash flow, I don't see that it's really going to do much for existing businesses that are operating in a healthy manner with a reasonable business plan that they're following. It'll probably be helpful for the IT upgrade we're thinking about next year though.

    I take this is kind of a veiled incentive for small business to create jobs and hire people by improving business cash flow. I can't really see how this will influence that decision however. Good for equipment upgrades though.
     
    Last edited: 13th May, 2015
  8. sanj

    sanj Member

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    I see the benefit mainly to suppliers of businesses who will use this tax break to upgrade equipment.

    Imagine if you're a hospitality supplier and a heap of businesses buy new ice machines because of this?

    I'm using that example because I've seen or spoken to 3 different operators who are thinking of doing that and that's within 24 hours of the announcement
     
  9. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    Important also to remember that for a GST registered business they can buy items up to $22,000 (assuming its 100% business use) AND its each item.

    So if I buy a server $12K, a rack units $4k, switches $4k and have IT pro's install and configure it $8K all of it would be deductible this side of 30 June. No pro-rata.

    Worth remembering that if the business doesn't make a taxable profit its a cashflow negative scenario that would only increase carried fwd losses (or leave a deferred non-commercial loss). For a profitable company the tax benefit is 30% of the cost after claiming the GST.

    In the $22K example there is still $14k negative cashflow.
     
  10. Aaron Sice

    Aaron Sice Seldom Seen Kid

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    i find it odd people would spend $1 to save 30c.
     
  11. D.T.

    D.T. Property Lookerafterer

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    Because its better than current which is to spend $1 to save 5c per year :p
     
  12. Burramys

    Burramys Member

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    Thank you. It's too cold for diving.
     
  13. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    The intention isn't to do that - Some people may foolishly think that. The intent is to encourage small business to spend $ and stimulate the economy. Bring forward expenditure they may otherwise defer / delay.

    Some people may end up spending up and find they get no tax benefit too. Spend $1 and get $0.00. Some might argue some neg geared IPs do this. (Yes but they may increase in value I agree)
     
  14. jerrybee

    jerrybee Member

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    It could have other benefits too - it could take you down a tax bracket.
     
  15. D.T.

    D.T. Property Lookerafterer

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    Paul,

    What's your thoughts on personal item being sold to one's own business and then deducted under these new provisions?
     
  16. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    There appears not to be a "new asset"" requirement mentioned in the Treasury papers but this could be included in later tax law. I doubt it however. Personal assets could be sold to the company for example but take care that deductions hadn't been claimed or some tax issues may result. It may be rare to have personal assets used by business in personal names. Why wasn't it a business asset before ?

    Remember assets above $20K (each) can also trigger this rule. Lets use example of a $26K Mazda 3. After GST lets assume cost is $22,800 after rego and TP. Its allocated to a pool in the 2015 year and depreciated at 15% for 2015 ($3420). So pool has a value of $19,380 at 1 July 2015. The pool satisfies the write off and a deduction in 2016 is $19,380. AS long as no further assets that cost more than $25,298 each (incl GST) during 2016 all is sweet.

    I suspect from the announcement that pre-budget assets are now eligible in a different way. They are pooled and if that pool value falls to under $20K it triggers write off. Of course all assets not written off must be pooled.

    Some family groups may find that an asset sale / repurchase between entities may also work.
     
    Last edited: 13th May, 2015
  17. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    Yes but that means the value of the deduction is worth less. Remember tax scales are progressive. As income rises the additional income is progressively taxed at higher rates. The marginal rate is the important fact. That's the rate that applies to that specific deduction.
     
  18. westminster

    westminster P Plate Developer

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    I'm pretty excited I can use it FY15 as my trust sold a property so has quite a profit to declare in FY15.
    I'll be talking to my accountant about what will be best for me.
     
  19. Benvolio

    Benvolio Member

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    Wasn't this tax deductible anyway? how was this written off in tax prior to these changes? depreciation of asset or something?
     
  20. westminster

    westminster P Plate Developer

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    Items up to $1000 could be immediately written off, the rest where depreciated. Now we can write off up to $20k immediately