What the Federal Budget means for SMEs? PART 3

This is the third and final post of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

CAPITAL INVESTMENT TAX BREAK (SMALL BUSINESS)

We have been eagerly awaiting for this part of the budget to become tax law. And, this week, this stimulus for small businesses was passed by Parliament.

The ATO will be allowing "small business" to claim an additional tax deduction of 50% on the purchase of any business assets over $1,000.

A "small business" is defined as any business that has a turnover of less than $2 million a year. The usual 30% investment allowance will still apply to businesses with turnovers over $2 million a year.

We will cover the few criterias to be met but let's run thru what the tax break means for small businesses....

OLD WAY without TAX BREAK

A business buys a company car for say, $20,000 and depreciates it over the next 8 years. Using the simple prime cost method, this means $2,500 per year.

In other words, the business gets to claim a tax deduction of $2,500 per year for the next 8 years.

NEW WAY with TAX BREAK

Per the above, the business buys a company car for $20,000 and depreciates it over the next 8 years.

However, in this case, the business gets an upfront tax deduction of $10,000 (50%) in the 1st year AND the depreciation deductions over 8 years.

In other words, the business gets to claim a tax deduction of $12,500 ($10,000 + $2,500) in the 1st year. And, the usual depreciation deduction of $2,500 ever year until Year 8.

Sounds exciting and makes you just want to go forth and spend, doesn't it? 

Well, that's the government's plan. 

But, let's run through the criterias that you have to satisfy....!

CRITERIA

1. Business turnover is less than $2 million per year

2. Asset has to be a purchased between 13 Dec 2008 and 31 Dec 2009

3. Asset has to be an eligible new tangible depreciating asset 

4. Asset has to cost over $1,000

SUMMARY

This is the small business version of the government's "$900 cash tax bonus". 

The tax break is designed to encourage small businesses to spend on capital assets to boost the economy and create jobs.

This may well be the best time to buy that tractor, van or other asset for your business. 

If you have a corporate structure with a tax rate of 30%, the government is effectively GIVING YOU the other 20% as an incentive.

SPECIAL NOTE for GROWTH BUSINESSES

For those businesses who are currently in a rapid growth phase with turnover close to $2 million per year....

If you can afford it (and need it), buy your business assets NOW whilst you are considered a "small business". That way, you can take advantage of the 50% investment allowance.

If you delay, you may only be entitled to the 30% investment allowance of businesses turning over $2 million per year.

END OF PART 3 

OF THE SME BUDGET SERIES

From the AusTax team. 

The #1 provider of Australian tax news on twitter.