Small Business Entity (SBE) immediate write-off for assets costing less than $6,500tax breaks for SBE

If you are in business and your aggregated turnover is less than two million dollars, you can elect to be a SBE which allows you to take advantage of some wonderful tax concessions.

Until 30th June 2012, SBE’s have been able to claim an immediate deduction for new asset purchases which cost less than $1,000 (net of GST), in the year the asset was purchased.

From 1 July this year, this amount has increased to $6,500 (net of GST). Therefore, new asset purchases such as computers, software, furniture or diagnostic equipment can be written off in the financial year the asset was purchased. Prior to 1 July, the asset was depreciated.

Accelerated depreciation for new or used cars

If your business is a SBE, you can claim $5,000 depreciation upfront, on the purchase or either a new or second hand car from 1 July 2012. The remaining balance of the purchase is depreciated as usual, according to the business use of the vehicle.

What this means is from 1 July in the financial year that you purchase the vehicle, the business will receive an added tax saving of $2,325. Good news if you are looking to upgrade your car.  Vehicles will be treated like any other depreciable asset, meaning that if they cost $1,000 or more, the purchase price will need to be added to the small business depreciation pool and depreciated.

Cashflow

In any small business, cash flow is the number one. These measures essentially mean that a taxpayer must defer deductions to later income years where they wouldn’t otherwise have had to do so.

Basically this means where a taxpayer has relevant capital expenditure (which is a burden on cash flow in and of itself), that taxpayer will no longer have the benefit of totally writing off the relevant assets against their income. Instead, they will have to depreciate over a number of years, which will mean more of their income will be subject to tax in the current income year (again adversely affecting cash flow).

The effective management of your tax position is critical. Getting the right advice upfront can make a significant difference to your bottom line and cash flow.