Are you really getting the most out of the small business tax break?

Jan Vykydal

You know what’s better than running a successful business? Running a business that’s successful and then the government hands you a wad of cash.

As part of the small business package included in this year’s federal budget, there was a tax break that lets businesses with turnovers of less than two million dollars claim a $20,000 instant asset write-off.

And as it turns out, a lot of people really like that idea. Recently released treasury data shows that between 1 July and 15 December of this year, small businesses have claimed 418.5 million dollars under the scheme.

The number of businesses claiming jumped from 78,000 in the same period last year to more than 99,000 this year.

And it’s just more people. It’s more people claiming more money. Even though the data only covers six months, it shows that 56,000 claimants are new this year, and that the average claim this year increased by roughly $1000.

How does it work?

More than 99,000 sounds like a lot of businesses, and it’s definitely more than last year, but to put that in context, the Australian Taxation Office reports that there were roughly two million small businesses operating in Australia in 2012-13.

The new threshold write-off will last until 2017, and things you can write off include cars, vans, kitchen equipment, machinery, and so on.

The fun part is that with the current rules, pooled assets can be immediately deducted if the balance is less than $20,000.

The new threshold write-off will last until 2017, and things you can write off include cars, vans, kitchen equipment, machinery, and so on.

Let’s get technical

Terry Hayes, writing for smartcompany, describes the situation this way:

“A bakery is run as a company. The business purchases a new oven for $13,750 and a new proofing cabinet for $3500 to replace its old, worn-out equipment. Under current law, because these assets each exceed the current $1000 threshold, they would be included in the accelerated depreciation pool. Of their combined $17,250 cost, only 15 per cent, or $2588, would be depreciated in the first year. With a company tax rate of 30 per cent, this means that the company would only get $776 back on its tax in the first year.

Under the new $20,000 threshold, the company will be able to claim an immediate deduction for both the new oven and the new proofing cabinet, giving an immediate deduction of $17,250. With the new small business company tax rate of 28.5 per cent from 1 July 2015, the company will get $4916 back on its tax. So, under the new $20,000 threshold for accelerated depreciation, the company would receive an additional cash flow benefit of $4140.”

Further reading

The Australian Taxation Office has put together a comprehensive guide for anyone wishing to know more.

Jan Vykydal

Jan is a Sydney-based writer and editor whose work has been published in a stable of titles including the National Post, The Daily Planet and Edmonton Examiner. He is currently Editor at ShortPress.