Small businesses are in for some great incentives under the 2015 Federal Budget presented by Treasurer Joe Hockey in May.
Businesses having a yearly turnover of below $2 million are now eligible for tax deductions on purchases below $20,000. This is a great confidence boost for small businesses and the retail sectors.
Business owners can add assets worth more than $20,000 into a depreciation pool and immediately claim the deduction if the value drops to $20,000 or below prior to 30 June 2017 when this program terminates.
It’s an incentive that can be enjoyed long term by some, but those thinking of capitalising on the new budget policy should be cautious.
Organisations must be calculated and deliberate when deciding whether their business would benefit from going after it.
Mulling over Purchases
First, determine whether you are in a stable financial position before making additional expenditures.
Australian small enterprises are still experiencing difficulty and many of them are concerned about cash flows. The new incentives are tempting, but businesses should exercise prudence in their purchases and take into account the effect it may have on their business as a whole.
If your primary reason for making purchases under the new measure is because of the tax deduction, you could be opening yourself up to needless risks.
Making new purchases means you are taking money out of the business, even though you can claim the amount back. The business should be able to pay for the new expense. If it affects its capacity to meet other monetary obligations, the tax deduction may not be worth it.
Ensure that you know and have a good working capital cycle, including the ways you can turn debtors and stock into cash and the terms of your creditor agreements. This will allow you to know the amount of money you have at all times.
If companies are considering taking out a loan to make more investment, it is essential to use appropriate debt facilities. Don’t use high interest credit cards and overdraft facilities. Instead, use longer term fixed loans instead. Also make sure you are able to meet all existing interest charges and principal repayments.
Make sure to find out whether you are eligible for the $20,000 asset write-off because the immediate tax deduction is only open to small businesses. More specifically, you will be able to keep the annual turnover below the $2 million threshold.
You may need a more in depth examination of your business’ turnover during the course of the year, in particular when the purchase intended to be written off will be made, since you may be clueless about whether you will surpass or fall below the $2 million turnover threshold at year-end.
Seek the Appropriate Advice
On the whole, don’t forget that while you have to take into account various things before making any new purchase, support networks are available to help you choose the right path.
It’s very important to consult with a bank and other financial experts so you are sure that any new investment or purchase – whether it is tax deductible or not – you make will not impact the most critical aspect of your business – your bottom line.
According to financial professionals, there has been an increased demand from businesses searching for the expertise of advisers when they fall into financial difficulty, in the hopes of stabilising its financial status.
Any company that is targeting to implement the right structure and strategy to flourish as an organisation, instead of fighting help, is setting themselves up for the best chances of continued development.
As advisors, we are aware of the amount of hard work, passion and sacrifice needed to build a business, and it can be disheartening when they fail.
However, what we often find out is that many company owners are so attached to the business they have founded that they find it difficult seeing a different manner of doing things, which is sometimes a necessary evil they have to deal with.
This situation is where an independent, expert point of view can be the difference between returning to the right path and closing shop permanently.
Don’t expose your thriving business to taxation pitfalls by not employing financial professionals to advise and guide you. PJS Accountants offers a full complement of compliance, corporate and individual tax services. For enquiries on how we can help you manage your tax affairs, contact PJS Accountants.