Anyone else seen an ad like this?
When you read the headline, was your initial reaction, “great, I can get $20,000 from the government”? Mmmm, sorry to burst your bubble!
I do hate to disappoint you, but the old saying “if it seems too good to be true, it is” certainly applies here and in this case, there’s no free handout. As always looking at the fine print is crucial!
Yes, the government has extended (in the latest budget to 30 June 2019) the small business instant asset write-off and this is good news for small biz owners. But no, they aren’t going to “offer” you $20,000 as the misleading headline suggests.
What it means is that if you purchase an asset up to $20,000 and it is installed and ready to use by 30 June, you can claim a tax deduction for the full purchase amount in that year. Previously you would need to claim the purchase price over several (or many) years. It’s a great initiative designed to help the cash flow of small businesses which is always tight. But it’s not ‘money for nothing’ and you’ll need to have made the outlay in order to claim.
So, what are the conditions:
- You must be a small business.
- It must be an asset of the business – you can’t claim a new tv for home!
- It must cost less than $20,000 (excluding GST).
- You must be a small business (that is, turnover is less than $10 million).
- It must be installed and ready for use by the end of the financial year. It isn’t enough that it has been paid for, you must have it on site and ready to put it to work.
That’s the government legal take, but is it right for your small business to jump in and spend money just for the potential deduction?
Mostly these ads run in the lead up to 30 June. But my advice is that you should be looking at opportunities all year round and not be rushing into a decision according to someone else’s deadline. Certainly, what you should never do is purchase something purely for the tax deduction or because it’s on special. Small business cash flow is important so be sure the outlay is going to reap exceptional benefits for growth and increased profits.
You always need to consider how a significant purchase will affect your cash flow, will it increase revenue or decrease expenses, will you need to increase your borrowings, will it improve productivity?
The answers to these questions will help you decide whether it’s a purchase that your business needs because that’s the only reason you should outlay a significant amount of cash – no matter how good the tax deduction may seem.
Do you have any further questions about how to take advantage of the instant asset write off rules? I’m more than happy to chat with you and offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances.