The recent budget made business owners very happy, with the announcement that small businesses with an annual turnover of under $2 million can claim immediate tax deductions for assets under $20,000, rather than spread the deductions over multiple years.
This is a dramatic increase from the current $1000 threshold, where deductions could be claimed over five years. Assets eligible for the deduction are broad-ranging and include many elements involved in an office or retail fitout, such as fittings and fixtures. Both new and second-hand assets are eligible, however stock for the business, marketing costs, some horticultural plants and software developed in-house by a business are not. Software purchased off the shelf for the purpose of business is eligible for an immediate deduction.
This change is likely to have a dramatic impact on smaller fitout projects that occur in the marketplace. It will also be a clear selling point for savvy operators who understand the potential benefits these changes will have on clients, when securing contracts for upcoming projects.
Assets over $20,000 can be pooled together and depreciated at a rate of 15 percent in the first year and 30 percent each year after that. If the value of these assets drop below $20,000 they can be immediately deducted.
Capital works are still subject to their own depreciation rules. These include buildings, extensions, alterations or improvements to a building; structural improvements such as sealed driveways, fences and retaining walls; and earthworks for environmental protection. Different deduction rates apply depending on the date that construction began, the type of capital works and how it’s used.
In addition to the tax write-off, small businesses with a turnover of less than $2 million will also enjoy a reduced company tax rate, from 30 percent to 28.5 percent. Unincorporated businesses will get an annual 5 percent tax discount up to $1000.
This generous offer is temporary and will conclude end of June 2017, so if you or your clients are thinking about undertaking an office or retail fitout, the time to act is now.
It’s important to note that the proposed changes have not yet been legislated. However, if passed by parliament, it will apply to assets acquired from 7.30pm on 12 May 2015 until 30 June 2017. For the latest updates on the measure as it progresses through parliament or any questions regarding tax deductions on business assets, visit the Australian Tax Office website or call 13 28 66.
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