The recent Federal Budget outlined a generous package of stimulatory measures aimed at enticing small business to invest. With tempting offers on the table, such as the opportunity to buy new vehicles or equipment, businesses have to decide whether to allocate their precious resources and invest in an unknown economic future.
In the Federal Budget, Treasurer Josh Frydenberg announced that almost all Australian businesses will now be able to immediately write-off the full value of all new assets purchased during the next two years without limits on the value of individual purchases.
The $27 billion budget measure is a significant expansion of the existing instant asset write-off scheme, which has also been extended for another six months.
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Businesses will now be able to claim the full value of all new eligible depreciable assets of any value which are first used or installed before 30 June, 2022. Businesses will also be able to claim full deductions for the cost of improvements made to existing depreciable assets.
The scheme is essentially an accelerated depreciation program that allows businesses to claim a tax deduction for the full value of a purchase, rather than claim depreciation amounts over several years. The aim is to get businesses to bring forward spending on new assets by allowing them to claim the full tax deduction upfront and reduce the amount of tax they pay.
As tempting as the thought of tax deductions may be, Rhys Kyburz, partner at accountancy and business advisory firm RSM Canberra, says businesses should always make decisions based on growing their business rather than minimising tax.
Businesses will benefit by applying some forward thinking and purposefully investing in assets to grow or diversify their business.
“Think about purchasing machinery, tools or technology that will enable your business to improve or expand services – invest to grow,” says Rhys.
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“Consider this offer as an opportunity to make your business more efficient. Think about what assets you could purchase that will help you get the job done more quickly or with less labour.
“For example, if you have a fleet of vans that are costing you more in repairs and maintenance than it would to service a loan for new vehicles, this may be a good time to upgrade.”
Rhys says because interest rates are low, finance opportunities will be attractive.
“When working out whether to take advantage of the asset write-off, calculate the cost of finance together with the tax deduction and the improvement it will bring to your business’s bottom line,” he says. “Keep your cash to fund any change in trading conditions or expand your marketing budget.
“Visit your trusted advisor and work out some smart solutions for your business. Businesses will be better off making decisions based on sound principles, not because the government has made it easier to purchase cars or machinery.”