Why 75 per cent of Victorian businesses are about to miss out on a huge opportunity
On March 12, the Federal government announced a stimulus package which included a massive boost for instant asset write offs for companies with an aggregated annual turnover of less than $500 million (previously $50 million) which would allow them to write off assets with a value of $150,000 – increased fivefold from $30,000.
According to Michael Pratt, Founding Director of SME Finance Group, about 75% of small to medium-sized businesses have failed to take advantage of this opportunity to invest in themselves and use this crisis as an opportunity.
“We’re finding the majority of eligible companies are concentrating on other Government COVID-19 incentives and appear to have forgotten the $150,000 write-off per asset available to them through the ATO,” said Mr Pratt.
By using an instant asset write-off, a business can claim a tax deduction of the amount in which the item cost in the year the asset was first used or installed. The business can claim this deduction multiple times, as long as the item costs below the threshold amount.
“With the right planning a business can significantly reduce their tax liability in the 2020 financial year. For example, if they purchase a piece of equipment for $140,000 and take delivery before 30 June, 2020, they can write off the full $140,000 in this financial year.”
When the stimulus package was announced, the Federal government committed to spending $700 million in an effort to stimulate the economy and encourage more businesses to buy big-ticket items such as cars and equipment.
Unfortunately, this window of opportunity is quickly closing. Eligible businesses have until June 30, 2020 to invest the extra $150,000 per asset available to them for instant asset write-offs through the Government’s stimulus package.
There are also conditions as to what can and cannot be written off, for example, items that are leased out, horticultural plants and some software cannot be claimed. The Australian Tax Office website has more information about what can and cannot be claimed.
As the 2019/2020 financial year ends on 30 June 2020, the opportunity will be lost with it. Starting 1 July, down from $500 million, the instant asset write-off will only be available for small businesses with a turnover of less than $10 million with the threshold reducing to $1,000.
Any business with a turnover of $500 million or more in the new financial year will not be eligible to use instant asset write-off.
Though many businesses could benefit from the short-term incentive scheme, those who are already doing it tough may not have the funds available in order to take advantage. Mr Pratt, however, believes with the right debt structure, there is still opportunity for those who may be hit the hardest.
“There are some great deals out there to help enable operators restructure their finances to maximise opportunities, manage cash-flow and reduce their risk exposure. It’s accessing them that can sometimes be a challenge,” said Mr Pratt.
“[SCT] appreciate it’s a stressful time and nobody has a crystal ball. However, a significant proportion of business owners will start to see green shoots in the coming months. Of course some sectors will be more impacted than others but, those who act informedly now will have the advantage of a brighter outlook moving forward,”