The budget which was announced by the Treasurer on Tuesday 12 May contain some rather interesting opportunities but good decision making considerations should not be forgotten in the hysteria to go out and spend on capital equipment.
The accelerated depreciation for small businesses was significantly increased and is effective from 7.30pm on 12 May. This allows businesses to immediately deduct expenditure on assets they start to use or install ready for use that cost less than $20,000. Assets costing $20,000 or more can still be depreciated in terms of the small business simplified depreciation pool at 15% in the year of purchase and 30% each income year thereafter.
There is one thing to bear in mind, though, with this temptation to go out and spend. This is to first consider whether your business needs the asset being considered or if the tax benefit is proving too much of a temptation to cloud judgement. The company tax rate is 30% and the vast number of small business owners are in the 32.5% tax bracket. This means, in the case of the company, that for every dollar you spend you save 30 cents in tax. The other 70 cents though, you pay. So spending a dollar to save 30 cents may not be a good decision.
If, however, you were planning to invest in capital equipment in the near future, bringing the purchase forward does make good sense as you will enjoy the deduction quicker. Furthermore the company tax rate next year is going to reduce to 28.5% so buying this year is a slightly better option from this point of view as well.
With assets of $20,000 and over there is also an incentive to bring forward the purchase as you will claim 15% this year and 30 % of the balance in 2016. This is a total of 40.5% by the end of 2016 as opposed to the 15% if our buy after 30 June.
Another benefit in the budget which is not quite so obvious is the ability to immediately expense professional expenses on commencing a new business, as opposed to the 5 year write off previously. There is also the CGT relief for entity type changes which would previously trigger a CGT liability. So if you are currently not in the right structure (company, partnership, sole trader) there is an opportunity to move to a more advantageous structure without the previous constraints. This is definitely an opportunity not to be missed and we would be more than happy to discuss your options with you should you need further information on this.