09 Jun Claim your solar panels under the $20,000 instant asset write-off
ACCORDING to research by Officeworks and H&R Block, 78 percent of small business owners don’t understand how the $20,000 tax break (instant asset write-off) works.
Of the 809 small business owners surveyed, a quarter admit they can’t figure out what the instant asset write-off covers. That’s a lot of missed opportunities.
It’s a situation Verity Tuck, co-founder of Melbourne-based online same-day gift site LVLY, knows only too well.
“When the $20,000 instant asset write-off scheme came out I knew it could be useful, but without a background in accounting I wasn’t sure whether it would be relevant to us. I did a fair bit of reading and it still wasn’t clear which assets would qualify,” she said.
As a result, Tuck and her business partner Hannah Spilva didn’t make use of the concession last year. “It wasn’t until we changed our accountant it was flagged for us. We didn’t realise a website was considered a depreciable asset,” she explains.
The business was developing a new site at the time and has subsequently been able to use the $20,000 tax break to fund it. The website cost around $14,000,and being able to immediately claim meant LVLY could afford to buy a new laptop, which helped increase the team’s productivity. The business turns over $1 million a year.
While the LVLY team has found the tax break beneficial, Tuck says more education for small business owners around the fine print of how tax incentives work in practice would be useful.
“We’re both well educated, but we don’t know everything. We’ve been running the business for just over two years. The first year highlighted a gap in our knowledge of core business practices like accounting, operations, payroll, legal, tax and insurance.
“We understood at a high level, but when it came to applying the intricacies it was a struggle. It would have been good to understand how to get people involved to help in those areas,” she says.
Mark Chapman, director of tax communication at H&R Block, says a lot of businesses are not fully aware of what they can claim. Some don’t even know the instant asset write-off exists.
“There’s a big knowledge gap in terms of what people understand about the tax break and what they can claim,” he says.
Tom Harley, who runs Aussie Plumbing and Gutters, has taken advantage of the $20,000 tax break. The business turns over $2.5 million a year.
Before the end of the 2015-2016 financial year the company bought a $20,000 ute. Rather than depreciating the asset, he was able to write it off immediately.
“This year I bought new Apple Macs for the office, which we can immediately write off. So we’re up to date with the latest technologies and buying the ute means I have an extra person on the road,” Harley said.
As to what you can claim under the $20,000 immediate tax write-off, the first thing to remember is the purchase has to cost $20,000 or less, exclusive of GST.
“People think they can buy a $40,000 car, get the $20,000 write-off and treat the other $20,000 as depreciation. But if it’s a $40,000 car, the whole thing has to be depreciated over its effective life,” Chapman explains.
If you have upcoming business expenses, now might be a good time to make the purchase so you can make the deduction in the current financial year. But remember don’t just buy something for the sake of it – the purchase needs to add value to your business for it to make financial sense.
A version of this article was originally published at smh.com.au