The new federal budget: Top 3 things to watch out for
The government budget this year has delivered some early Christmas goodies for businesses with gross turnover of less than $2 million, commencing 1 July 2012. Here are the top three that you need to know about that will impact your business.
100% tax deductions available for asset purchases that cost less than $6,500, including cars
Small businesses, whether run by sole traders, partnerships, trusts, or through companies, are now eligible to instantly write off new business assets costing less than $6,500, including cars costing $6,500 or less, for as many assets as they purchase from 1 July 2012. That’s a 100% tax deduction right there.
It gets better: businesses are now entitled to write off the total balance of their general asset pool where the value of the pool is less than $6,500. More tax deductions.
Assets costing $6,500 or more can access accelerated depreciation by being consolidated into a single pool and depreciated at 15% in the first year and 30% flat each year after, with no need for prorating the depreciation claim in the first year.
Warning: If your business has not been pooling assets and claiming depreciation under the existing small business entity rules, it will be ineligible for the new depreciation rules.
Tip: The $6,500 threshold is applied on a GST-exclusive basis if business is registered for GST.
Tip: The $6,500 threshold is applied on an asset-by-asset purchase basis. No need to aggregate identical or substantially identical assets to claim the threshold.
Instant write off of $5,000 of the cost of a car costing $6,500 or more
Small businesses can now instantly write off the first $5,000 of the cost of a car when purchased from 1 July 2012, whether new or secondhand. Cars, motorbikes, vans, trucks, utes, and scooters all fit the definition of a motor vehicle and are eligible for the instant $5,000 upfront deduction.
The Trick: The business-use percentage of the car as per your log book affects how this is claimed. If the business-use percentage times the cost of the car is less than $5,000, then you get an instant 100% tax deduction. If the business-use percentage times the cost of the car is more than $5,000, then the first $5,000 is a tax deduction. The remainder of the cost of the car is consolidated into a pool and can access the accelerated depreciation rate of 15% in the first year of allocation and 30% each year after that.
Loss carry back for companies: tax refunds might await your business
If you trade your business through a company, and you make a tax loss in the 2013 financial year, the company will be able to offset this tax loss against a profit it made in the 2012 financial year up to a maximum loss amount of $1,000,000. From the 2014 financial year the company will be able to offset tax losses against two prior financial year profits. The maximum tax losses carried back cannot exceed in total $1,000,000. Therefore, there is maximum refund of $300,000 that can be claimed based on the company tax rate of 30%.