With a sunset date of 30 June 2017, small businesses may wish to start considering bringing forward any planned asset investments to the next few months – particularly in this current low interest-rate environment.
Up until 30 June 2017, Small Business Entities (SBE’s) can claim an immediate write-off for the acquisition of most depreciating assets used in their business if the asset cost less than $20,000.
See earlier for the definition of an SBE. Being in its final year of operation the timing requirements around the instant asset write-off are important. To claim a deduction in 2016/2017, the asset must be first acquired from 1 July 2016 and first used or installed ready for use in your business on or before 30 June 2017.
Assets acquired before 1 July 2016, but used or installed ready for use between 1 July 2016 and 30 June 2017 are also claimable in full in 2016/2017. If you miss the deadline (i.e. if the asset is not being used in your business or installed ready for use on or before 30 June 2017) then the write-off threshold reverts to $1 000.
Missing the deadline will result in a worse cash-flow outcome for your business than if the deadline is met (see later example). The real benefit from the $20 000 writeoff is an improvement to your cash-flow. The write-off improves small business cash-flow by bringing forward deductions rather than having them spread out over more than one year.
Cash-flow can be a significant issue for small business, particularly start-ups. That said, it is important to have perspective. You are only getting back the tax rate on the asset, not the full value of the asset. This is the same as the old law where the write-off was $1 000 (which will apply from 1 July 2017). You don’t get any extra cash than you would otherwise have received under the old rules – you simply get it sooner.
Consequently, you should not let tax distort or blur your commercial instincts – as you don’t get any extra cash than you would otherwise have under the old rules, you should continue to only buy assets that fit within your business plan.