The week has been huge for small businesses with finance minister Joe Hockey announcing tax rate reduction for small businesses - from 30% to 28.5% - in the coming financial year 2015-2016. Plus, the immediate tax deduction for business purchases of up to $20,000 per item. Big grin on your face huh? :)
What has changed?
- Small Businesses will now pay a lower tax rate from 30% to 28.5%, a reduction by 1.5%, for the financial year 2015-16.
- All business purchases of qualifying items with individual value of up to $20,000 can be immediately deducted from your income for tax calculations.
NOTE: It is in fact a depreciation claim we used to make earlier - claimable up to 5 years of the purchase, that has been expedited. Sometimes, we wouldn't be able to claim the full amount (even after 5 years) but now we can!
In brief, this is what it does.
- Small businesses can now deduct any purchases related to business for up to $20,000 from their income.
- The purchase must be made before 1st July 2015.
- Multiple items can be purchased, as long as the value of individual item is less than $20,000.
- Even if the value of the item is over $20,000, if the depreciated value of it comes down below $20,000 within 2017, you will be able to claim the full amount when that happens.
So, what can we purchase?
You can purchase any business items that adds value to your business. It can be:
- Plants or machinery (but not horticulture items)
- Signage or marketing materials
- Vehicle less than $20,000.
- Software or Software Development (but not in-house development)
- Computer hardware like servers, laptops
- Arts & Prints, TV, Fridge like equipment for exclusive business use.
Be mindful of the following though:
- You have to be a small business. If your yearly income is less than $2m, no matter what the format of your business is, i.e. sole trader, partnership, trust - you are eligible. Group of companies, though are not treated separately, so if you cumulative income is over $2m, you are not eligible.
- In-house software development is not covered
- Buying of non-depreciatiable items are not covered. Ex are goodwill (i.e. business acquisition) not covered.
- It is just a tax reduction but not a grant. So, even though you don't pay tax for it, you still need buy it yourself.
- Purchases on finance is not qualified. That is, if the ownership of the item doesn't belong to you, you are not eligible.
- ATO is monitoring fraudulent usage or non-business utility purchases.