TAX advisors and accountants H&R Block have given their top pointers for how your business can make the most of the changes.
THE TAX CUT Treasurer Joe Hockey announced that from July 1, 2015, all incorporated small businesses will see their tax rate fall from the current 30 per cent to 28.5 per cent.Better still, those small businesses which aren’t operated through a company (about 70 per cent of the total) will also get a tax cut.
If you are a sole trader, or operate through a partnership, a trust, or indeed any other non-corporate vehicle, you’ll get a five per cent discount on the tax payable on your profits from the business, up to a maximum of $1,000 per individual.
The changing tax rate at July 1 opens up a few opportunities that you really should be taking advantage of:DEFERRING TAXABLE INCOME (by invoicing late or delaying completion of a job for instance) until the start of the new tax year – this revenue will be taxed next year at the lower rates coming into force.
Accelerate deductions if you are able to pay additional bills before the end of the current tax year, or even prepay some of next year’s costs, you can lock in a deduction at the current, higher rates of tax.
THE $20,000 ASSET WRITE-OFFRetailers are reporting a boom in enquiries, and surveys indicate that the Treasurer’s message to go out and have a go has resonated with many taxpayers, who are rushing to take advantage of the new instant deduction for assets acquired up to a value of $20,000.But with those same surveys indicating that more people intend to take up the tax break than are eligible to receive it, a note of caution needs to be sounded.
To minimise your chances of having the ATO challenge the deduction, here are some key tips:ONLY SMALL BUSINESSES QUALIFY. This might seem obvious but you actually have to be in business to be a small business.All those saloon bar experts advising that you just need to go out and get an ABN to claim the tax break are wrong. At the very least, the ATO will expect to see evidence of real business activities and they will no doubt be looking very closely at post-budget night applications for ABNs, particularly where registration is then matched with subsequent asset purchases.
MAKE THE MOST OF THE TAX BREAK AND PURCHASE THIS TAX YEARUnlike the small business tax cut, which doesn’t come into force until July 1, the $20,000 asset write off is available immediately and will apply until June 30, 2017. So, if you plan to make use of the tax break, the best time to do it is before June 30, 2015 when you will able to claim the write-off at the current, higher rates of business tax.
UNDERSTAND WHAT THE TAX BREAK IS. And also what it isn’t. For example, it isn’t a cash hand-out.If you go out and buy an asset for, say, $10,000 the ATO won’t give you $10,000 in cash to reimburse you.They’ll allow you to deduct $10,000 from your profits for the year which assuming a tax rate of 30 per cent – means that your overall tax liability will fall by $3,000.The tax break is great if you already plan to purchase assets, but it would be unwise to rush out to buy things you don’t genuinely need because following on from the example above you’ll still be out of pocket by $7,000 on your $10,000 purchase.
THE AMOUNT YOU CAN CLAIM IS GST EXCLUSIVE. This is relevant if your business is registered for GST and can claim an input tax credit on the purchase. The amount you can claim is the GST exclusive price. That means that if a retailer is quoting GST inclusive prices, you can purchase assets up to $22,000 in price ($20,000 excluding GST).
THE ASSET MUST BE INSTALLED AND READY FOR USE. This is particularly important if you intend to purchase an asset before the end of the tax year and you might have to wait for it to be delivered or installed. It isn’t enough that the asset is purchased, it must be installed and ready for use in the business before the deduction can be claimed.
SECOND-HAND ASSETS. Yes, you can claim a deduction for second hand assets. That could be particularly useful for motor vehicles. That new ute you’ve had your eye on might not qualify because its over $20,000, but if you can pick up a second-hand one for less than $20,000, you can still get the benefit.
BEWARE PRIVATE USE. To claim the full deduction, the asset has to be used in the business. If there’s an element of personal use, you can still claim the deduction but it needs to reflect the element of personal use. So, if you spend $10,000 on an asset which is used 50 per cent privately, you can only claim a deduction for $5,000.
Of Course its always important to make sure that you hold the correct trade licenses, and having a BLD# will go a lot further than just an ABN for proving you are a legitimate small business. If you haven’t got your sub-contractors license, read our step by step guide on how to get one https://www.fcta.com.au/contractors-builders-licence-essential/
The next trade subcontractors course starts November 7th – 8th and concludes November 21st – 22nd. Bookings can be made at https://www.fcta.com.au/shop/contractors-licence-course-flyer-4-day-course-held-over-2-weekends-2/
- JUNE 10, 2015