With interest rates at an all-time low and a range of tax cuts on offer for SME’s, now is a great time to borrow money. Coming up to the busy Christmas period, it might be a good time to check-in with your clients and go over the health of their business equipment. How are their tools of the trade? If their business assets are tiring, it could be costing them more to maintain.
Out with the Old in with the New
With access to a range of products – including replacement facilities that allow the replacement of old for new – why not look at getting newer equipment that can provide your clients access to newer technologies and new product warranties. They could also take advantage of tax cuts such as the Instant Asset Write-Off. Older assets may also be fully depreciated, so replacing with a newer asset means they can also take advantage of this tax benefit as well.
The Instant Asset Write-Off
The Instant Asset Write-Off is available to both small business (annual turnover $10 million or less) and medium enterprise (annual turnover between $10 million & $50 million). The threshold for eligible assets is $30,000 for purchases made before 30 June 2020. This is a great way to refresh tired business equipment or to grow the fleet of business assets. Keep in mind that should they wish to purchase a new vehicle they will also use personally, only a percentage of the purchase price can be claimed.
Are You Better Off Financing or Purchasing Outright?
By doing a cash flow assessment, it will be possible to ascertain whether they are better off purchasing a new asset outright or funding it. The instant asset write-off is available on both options for eligible assets, so they get this advantage no matter which option they take, and there are pros and cons to both.
Tax Advantages of Purchasing New Plant
By claiming depreciation on an asset, it effectively reduces the business taxable income. So, for example, if the business has an annual turnover of approximately $600,000, and there is a purchase of a new machine worth $60,000, the taxable income will be reduced by this amount. This means the taxable income is now only $540,000 reducing the amount of tax that the business owes. Therefore, as well as being able to claim the depreciation of the new asset, the interest in any asset loans taken on the equipment is also a deduction.