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 the health of your business equipment. How are your tools of the trade? If your business assets are tiring, they could be costing you more to maintain.
Out with the Old in with the New
With access to a range of products – including replacement facilities that allow you to replace old for new – why not look at getting newer equipment which will give you and your business access to newer technologies and new product warranties. This also allows you to 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 you 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 your fleet of business assets. Keep in mind that should you wish to purchase a new vehicle that you will also use personally then only a percentage of the purchase price can be claimed.
Are You Better Off Financing or Purchasing Outright?
By assessing your cash flow, you can ascertain whether your business is better off purchasing a new asset outright or funding it. The instant asset write-off is available on both options for eligible assets, so you get this advantage no matter which option you take, and there are pros and cons to both. It is always best to obtain advice from your accountant. If you do go with finance, you will preserve your cash flow and the interest payable on the loan (or the additional cost of financing the asset vs paying cash for it) is fully tax-deductible.
Tax Advantages of Purchasing New Plant
By claiming depreciation on an asset, it effectively reduces your businesses taxable income. So, for example, if your business has an annual turnover of approximately $600,000, and you purchase a new machine that is worth $60,000, your taxable income will be reduced by this amount. This means the taxable income is now only $540,000 reducing the amount of tax your business owes. Therefore, as well as being able to claim the depreciation of the new asset, the interest in any asset loans you take on the equipment is also a deduction.