Woah there Small Business, careful with that $20,000 spend – you don’t get it for free.

Tonight in Canberra, Federal Treasurer Joe Hockey delivered his second budget speech, with a very clear focus on small business. One thing that jumped out at me was the...

Tonight in Canberra, Federal Treasurer Joe Hockey delivered his second budget speech, with a very clear focus on small business. One thing that jumped out at me was the announcement that small businesses could claim an instant $20,000 deduction from tonight. With plenty of that likely to be spent on technology I thought I’d check out just what that means.
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Joe Hockey was clear:

“we recognise that small business, in order to succeed, needs better cash flow and better tools for innovation as well.

So I announce, that from 7:30pm tonight, small business can claim an immediate tax deduction for each and every item they purchase up to $20,000.

From tonight, it can be instantly written off to reduce your tax liability.”

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To break this down, on this week’s episode of Your Tech Life I spoke to the guru – Adrian Raftery – Mr Tax Man, Lecturer at Deakin University who I’ve spoken to before on tax matters.  He too was surprised by the news – “Almost fell of my chair when I saw $20,000, I thought wow this is a huge incentive I didn’t see coming”

But does that really mean if you have cash in the bank, you can spend it and get it back at tax time?  Adrian explains:

“That $20,000 net cost, you put as a deduction in this year’s tax return, whilst it’s 100% tax deductible, you only get the benefit back at your marginal tax rates, which for a small company is 30%”

“You spend $20,000, you get a 30% discount from your tax, which is $6,000, so your cash outflow from this transaction is still $14,000”

“Whilst you may be outlaying the money, you’re not getting all of it back. You’re only getting a portion – in this case 30% and that will reduce to 28.5% from the 1st of July.”

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In my example presented to Adrian this week, a new computer – “For a $3,000 computer purchase, a deduction (which would see a tax benefit of $900) would be spread over 3 years, however with this new incentive you get the immediate 100% deduction, so you’ll get $900 in one hit, rather than $300 each year over three years.”

So.  Relax.  Yep, it’s an excellent incentive from the Federal Government, but if you’re in small business – see your accountant before you spend up big – ok?

 

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Tech

Trev produces two of the most popular technology podcasts in Australia, Your Tech Life and Two Blokes Talking Tech. He hosts a nightly radio show on Talking Lifestyle, 8pm Monday to Friday in Sydney, Melbourne and Brisbane, appears on over 50 radio stations across Australia weekly, and is the Tech Expert on Channel 9’s Today Show and A Current Affair. Father of three, he is often found down in his Man Cave. Like this post? Buy Trev a drink!
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