Not everyone has heard about the two exciting changes hidden in the Budget for small business owners.
Previously you could use the Small Business Entity Concession scheme to entirely claim the value of Assets purchased up to a value of $1,000. This limit has been dramatically increased to the value of $6,500 GST Exclusive from the 2012-13 tax year. Other Assets you can claim are depreciated at a rate of 30% (15% in the first year).
As a result, some businesses may want to put off their annual asset purchases until after 30th June, but see your accountant for individual advice as this option may not be best for all situations.
The situation with cars is similar. You can claim an immediate deduction of $5,000 plus 15% of the balance in the first year. As an example, if you buy a car for $30,000, you can claim an immediate tax deduction of $5,000 plus 15% of the balance of $25,000. This is a total of $8,750 in the first year. The balance can then be depreciated at 30% in future years.
But again, see your accountant about whether you are eligible for this scheme and what is best with regards to your business situation. If you don’t have a good accountant that you can go to, ask your bookkeeper for a referral to someone who can proactively help you in this area.
Another new option for companies is designed to help them get through poor years.
Let’s say you have a reasonably good year in 2011-12 and make a profit of $400,000 and pay tax of $100,000! Don’t worry about the tax – worry about growing the $300,000 in future years.
But then you have a bad year. Maybe you got sick or a competitor opened up and started selling a better product across the street, or through the web. You make a loss of $200,000 in 2012-13, but are now well placed to grow having regained full health or developed some new products and distribution channels.
But you have a cash flow problem! Owing to the poor year, you are having problems paying your creditors and have received a letter of demand from your major supplier. Disaster looms, but you get your tax return done and discover that under new rules you can claim back tax paid in the prior year! In this case, you get most of your tax paid in the previous year back: $60,000 cash back which gives you the cash flow to recover and grow your business again!
This is part of the new “Tax Loss carry-back scheme”. It only starts in the year 2012-13 where your company can carry back losses of up to $1,000,000 with cash benefits of up to $300,000. In future years, you will be able to carry a loss back for up to two years earlier.
On the not-so-good cash flow news, employees on award rates may need their pay increased from 1st July 2012. Please check with your bookkeeper that they have the new rates.
Also Fuel Tax Credit rates and calculation methods change from July 1st!
And your software will need updates to handle changes to ALL the tax scales used for withholding tax. You may need to adjust your cash flows as some employees will not need nearly as much tax withheld, but your PAYG Withholding will go down correspondingly at the end of your BAS period.