What the new budget measures ACTUALLY mean to you as a trade business owner
With the new budget measures that came into effect on the 12 of May 2015, there’s a real opportunity for tradies to reassess their positioning in the market and consider investing in equipment likely to generate more business. The new rules allow small businesses to write off assets up to the value of $20,000 in the financial year they are purchased, rather than depreciating them over time. This is great news for those wanting to grow their business and could have an immediate positive impact on your profitability.
For example, a maintenance plumber is running his business as a company. The business purchases a new high pressure water jet drain cleaning machine for $13,750 and a new electric eel for $3500 to try and specialise in the niche market of drain clearing. Under current tax rules, because these assets each exceed the current $1000 threshold, they would be included in an accelerated depreciation pool. Of their combined $17,250 cost, only 15%, or $2588, would be depreciated in the first year. With a company tax rate of 30%, this means that the company would only get $776 back on its tax in the first year.
Under the new $20,000 threshold, the company can claim an immediate deduction for both the new high pressure water jet and electric eel, giving an immediate deduction of $17,250. With the new small business company tax rate of 28.5% from 1 July 2015, the company will get $4916 back on its tax. So, under the new $20,000 threshold for accelerated depreciation, the company would receive an additional cash flow benefit of $4140. This could be a great opportunity to tool up and generate more cash flow in your business.
The rule came into effect on Budget night, so it is valid for any asset acquired from 12th May, 2015 and 30 June 2017. It will last for the balance of this financial year and the next two. There is no limit to deductions, however the cost of each asset must be under the $20,000 limit.
This information is accurate but generic in nature, and we encourage you to gain professional advice relevant to your specific circumstances in relation to tax planning.
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