Explaining the Budget Tax Break for Business – What You Need to Know

Categories: Small Business, Tax
21 July 2015

image of gavel - Scott Partners - budget tax break

Federal budgets are often more interesting for political watchers and journalists than small business owners and medium sized enterprise managers. But the 2015 Federal Budget handed down by Treasurer Joe Hockey recently was a different story.

Reported by the media the next day as “the small business budget” there was a package of measures that benefited businesses of all sizes relating to things such as instant asset write offs for tax purposes and employee share schemes.

But the most positive measure and the least well understood was the $20,000 small business deduction.

So what do you need to know about this budget measure?

What is it?

Put simply, this measure allows businesses and medium sized enterprises to claim a $20,000 instant deduction against their tax payable for the income year. There are several conditions.

First, and most obviously, the business must be in a tax payable position. If you owe $20,000 in income tax for the year, the write off will reduce your tax to zero. However, if you owe only $5,000 in tax, you do not get a refund for the extra amount.

What can be bought?

The deduction must relate to an item you purchase to produce your assessable income. For example, cafes that buy a new coffee machine can claim the cost of that machine up to $20,000. Building contractors can claim $20,000 worth of new equipment.

How many times can I claim it?

There is no limit to the amount of items the write off can be claimed for, so if you buy three items of equipment each worth $20,000, you can claim the deduction for each of them (provided your taxable income is at least $60,000).

How long can the tax write off be claimed?

The measure is funded for two years, and will be reviewed at the end of that period. Prior to this measure being enacted, the instant asset write off was only $1,000.

Are there limits?

Yes. Only businesses with revenue (or turnover) of less than $2 million per year can get the benefit of this deduction.

In addition, you can only claim the deduction for the tax year that you incurred the expense. So if you have bought a new asset in June 2015, it will have to be deducted in the 2014/2015 tax return, not the 2015/2016 year return.

If you would like to discuss how the instant asset write off for businesses, or any of the other budget measures apply to your business, we encourage you to give us a call. We can arrange an appointment at a convenient time for you, and help you plan how to get the full advantage from the current business environment.