By Alexandra Cain
You can claim your website under the $20,000 instant asset write-off scheme
There’s a huge amount of misunderstanding around the federal government’s instant asset write-off for small business expenses valued at $20,000 or less.
According to research by Officeworks and H&R Block published on Wednesday, 78 per cent of small business owners don’t understand how the $20,000 tax break works.
Of the 809 small business owners surveyed, a quarter admit they can’t figure out what it covers.
That’s a lot of missed opportunities.
It’s a situation Verity Tuck, co-founder of Melbourne-based online same-day gift site LVLY, knows only too well.
“When the $20,000 tax break came out I knew it could be useful, but without a background in accounting I wasn’t sure whether it would be relevant to us. I did a fair bit of reading and it still wasn’t clear which assets would qualify,” she says.
As a result, Tuck and her business partner Hannah Spilva didn’t make use of the concession last year.
“It wasn’t until we changed our accountant it was flagged for us. We didn’t realise a website was considered a depreciable asset,” she explains.
The business was developing a new site at the time and has subsequently been able to use the $20,000 tax break to fund it.
The website cost around $14,000,and being able to immediately claim meant LVLY could afford to buy a new laptop, which helped increase the team’s productivity. The business turns over $1 million a year.
While the LVLY team has found the tax break beneficial, Tuck says more education for small business owners around the fine print of how tax incentives work in practice would be useful.
We’re both well-educated, but we don’t know everything.”
Verity Tuck
“We’re both well educated, but we don’t know everything. We’ve been running the business for just over two years. The first year highlighted a gap in our knowledge of core business practices like accounting, operations, payroll, legal, tax and insurance.
“We understood at a high level, but when it came to applying the intricacies it was a struggle. It would have been good to understand how to get people involved to help in those areas,” she says.
Mark Chapman, director of tax communication at H&R Block, says a lot of businesses are not fully aware of what they can claim. Some don’t even know the tax break exists.
“There’s a big knowledge gap in terms of what people understand about the tax break and what they can claim,” he says.
Chapman says when it comes to claiming expenses such as a website, some parts are considered capital assets and can be written off under the $20,000 tax break. Other elements may be written off straightaway as revenue costs.
“If you’re buying computer equipment and servers, or adding features like online shopping facilities or software that will give your business an ongoing benefit, these are usually regarded as capital expenditure and would be potentially eligible for the write-off,” he says.
Tom Harley, who runs Aussie Plumbing and Gutters, has taken advantage of the $20,000 tax break. The business turns over $2.5 million a year.
Before the end of the 2015-2016 financial year the company bought a $20,000 ute. Rather than depreciating the asset, he was able to write it off immediately.
“This year I bought new Apple Macs for the office, which we can immediately write off. So we’re up to date with the latest technologies and buying the ute means I have an extra person on the road,” Harley says.
As to what you can claim under the $20,000 immediate tax write-off, the first thing to remember is the purchase has to cost $20,000 or less, exclusive of GST.
“People think they can buy a $40,000 car, get the $20,000 write-off and treat the other $20,000 as depreciation. But if it’s a $40,000 car, the whole thing has to be depreciated over its effective life,” Chapman explains.
If you have upcoming business expenses, now might be a good time to make the purchase so you can make the deduction in the current financial year.
But remember don’t just buy something for the sake of it – the purchase needs to add value to your business for it to make financial sense.
Source: The Age
