A whopping 85 per cent of small business owners have never used the $20,000 instant asset writeoff, even though the vast majority of them want it to remain in place. The measure allows small businesses to claim an immediate tax deduction for business purchases that cost $20,000 or less.
According to a national survey of 829 businesses by Officeworks and H&R Block, 58 per cent of those surveyed have never heard of the instant asset writeoff, which was recently extended until June 30, 2019. But 96 per cent of respondents want the government to keep the scheme.
Mark Chapman, director of tax communication at H&R Block, says time pressures are a reason small businesses are not taking advantage of the tax break.
“Our research shows a quarter of small businesses don’t have enough time to use it; they are more interested in making money,” he says.
Even though most businesses are not using the tax break, Chapman notes it’s still beneficial for the small businesses using it.
“Hundreds and thousands of businesses are using it to boost productivity and take their company to the next level,” he says.
Chapman would like to see the $20,000 instant asset writeoff become permanent.
“Being able to immediately make tax deductions can mean the difference between success and failure for some small businesses,” he says.
The survey found businesses that use the tax break spend it in three main areas: plant and equipment such as tools for tradespeople, second-hand vehicles such as utes, and technology.
“Replacing five-year-old laptops that constantly crash immediately lifts productivity,” Chapman adds.
Ben Tracy runs jewellery workshop Finelines Jewellers and employs seven staff on the Gold Coast. He used the $20,000 tax writeoff to buy new machinery.
“Most of the equipment and methods we use haven’t changed for centuries. I saw the tax writeoff as an opportunity to bring our workshop into modern times and buy a laser welding machine, which has given us state-of-the-art technology so we can provide extra services,” he explains.
Raph Krell, founder of Melbourne based start-up Mana Cold Brew Coffee, has used the instant tax writeoff to buy equipment for a new brewery.
“We can use the cash to help with our expansion, buying stock, investing in marketing and covering overheads that have increased thanks to our growth,” says Krell.
Zhen Lim, founder of Tee Junction, a custom T-shirt and apparel printing business in Victoria, has taken advantage of the $20,000 instant asset writeoff to buy equipment to scale up his operations.
“We first used the instant asset writeoff in 2015 when we bought our first industrial digital T-shirt printer and supporting equipment, with the goal of bringing all production in-house,” says Lim. Previously the business manufactured offshore.
Lim was able to invest in marketing thanks to the savings made from using the instant asset writeoff, allowing the business to gain market share.
“We invest in new equipment every six months. Our production capacity has increased from 100 orders a day with a single printer to 2000 orders a day with six printers and substantially more supporting equipment,” says Lim, who adds the business has been able to employ more staff as it has expanded.
While the $20,000 instant tax writeoff is an attractive incentive, small businesses are warned not to buy things for the sake of it.
“Don’t rush out to buy assets before 30 June just to get a quick tax deduction this financial year – especially those larger assets costing up to $20,000,” says Michelle Maynard, a partner with Carbon Accountants and Business Consultants.
Maynard says the writeoff equates to a little over a quarter the cost of the purchase, less if the asset is not fully used for business purposes.
“Most business owners incorrectly assume that they receive a dollar refunded for every dollar spent on their business. This is not the case. Tax refunds are based on your income tax rate – which in a company is capped at 27.5 per cent. So, for every dollar spent, only 27.5 cents is refunded,” she explains.
Maynard also notes the term instant asset writeoff is a misnomer. “It’s not instant. The tax benefit is only returned to the business owner when they lodge their return, which can be up to 11 months after the financial year has ended. Plus, most businesses will finance the purchase and be tied to making repayments for years to come after the tax benefit has been received,” she adds.
While the instant asset writeoff is attractive, if you’re going to use it, be careful when taking on debt to fund any new purchase and make sure you really need it. If you can tick those boxes, now’s the time to make your investment so you can claim the deduction in the current financial year.
Have you used the $20,000 instant tax write off? Share your experience in the comments below.