As we emerge from the COVID-19 restrictions, practice owners have to look to their futures.
5 minutes
BOQ Specialist’s Gavin Brandenburger explains: “Working with dental, medical and veterinary professionals for over 30 years, we know that getting finances in order is one of many tasks on the ‘to do before 30 June’ list. With COVID-19 now presenting additional challenges to practice owners, we’ve pulled out some of the key points to consider to help manage this process and ensure you get the most out of the tax deductions available to you.”
Two key measures are applicable to practices. These are the increased instant asset write-off and the business investment incentive. Each one is designed to take some short-term pressure off your cash flow and will hopefully help you to withstand, then recover from, the economic impact of the coronavirus pandemic.
The $150 000 instant asset write-off
In the past, the instant asset write-off was available for assets up to $30 000 in value. It was only available to businesses with an aggregated turnover of less than $50 million. As of 12 March and running until 30 June 2021, that offer has been extended. The threshold has since been increased to $150,000 and is available to businesses with an aggregated turnover of less than $500 million.
This tax concession means you can claim an immediate deduction on eligible assets. It’s for physical equipment which cost less than $150 000. This $150 000 threshold applies on a per item basis (without any limitations on the number of items). It applies to new or second-hand assets first installed and ready for business use between 12 March 2020 and 30 June 2021.
Subject to any more action by the Government, it’s expected the instant asset write-off threshold will drop from $150,000 to $1000 (and will revert to small businesses with a turnover of up to $10 million) from 1 July 2021.
“This tax advantage is a simple and effective way to boost the health of your business,” says Brandenburger. “So it is important to investigate whether your assets are eligible for the deduction before 30 June 2020.” In addition, equipment suppliers may become more flexible at this time of the year. “The tax break combined with the lower cost options can help to minimise the impact on cash outflows,” says Brandenburger.
Backing business investment incentive
Some capital equipment costs more than $150,000. So the Government has also introduced an investment incentive for those assets. Businesses with an aggregated turnover of less than $500 million will be able to deduct 50 per cent of the cost of an eligible asset on installation. The existing depreciation rules will apply to the balance of the asset’s cost over its effective life. This is not available in addition to the instant asset write-off. It’s applicable for assets that cost more than the thresholds mentioned above at the time when the asset is installed. This incentive also has a longer application period and is available for assets that are purchased, first installed and ready to use from 12 March 2020 until 30 June 2021.
What assets are eligible?
Practitioners should seek advice from their tax adviser about what is eligible for the concessions. However, as a guide, equipment, such as new computers, medical equipment or any item that relates to a practitioner’s business is included. Items to be claimed must be physical assets. Marketing costs, for example, are not permitted. There are a few depreciating assets that are not deductible under this tax initiative, including software developed in-house by a business. Businesses have to buy and own the asset in order to get the immediate depreciation treatment. Financing the purchase via an asset purchase or chattel mortgage, credit card or overdraft/line of credit is also an acceptable option.
Be sure to act quickly
The expanded instant asset write-off concession will end on 30 June 2021. It would be worthwhile, therefore, to consider what assets you may wish to acquire and claim before then as well as next financial year. Many practices will fit the criteria to benefit from the tax break—all you need to qualify is an Australian Business Number and a turnover of less than $500 million.
“In response to current challenges facing Australian businesses, these tax concessions may be a simple way to boost the health of your practice and set yourself up for the future. It is important for practice owners to ascertain if this is right for their particular circumstances and then move quickly to take advantage before the deadline,” concludes Brandenburger.
If you’re looking to take advantage of these tax concessions, we can assist you with financing your asset purchase. Contact us or speak to one of our financial specialists on 1300 160 160 to discuss the options available to you.
