Last year’s budget included a $20,000 instant asset write-off — but that’s not all. From general deductions to specific provisions targeted at small and home-based businesses, there are plenty of ways to use the tax code to help you invest in your business.
How tax deductions work
A tax deduction allows you to reduce your taxable income when filing your tax return. They come in a few different guises, but generally relate to expenses that you have incurred while earning income — whether as an individual or a business. Earning income is key here, as a deduction is useless without taxable income to offset.
One type of deduction is for revenue expenses — things like rent, stationary and salaries. These are generally small or ongoing outlays, and can be claimed in the year they are incurred.
Another kind of deduction is for capital expenses — assets with a limited life like computers, tools and other gear valued over $1000. Generally you need to deduct capital expenses over a number of years, claiming back a small portion of the asset’s value over the course of their lifetimes. The ATO has a bunch of handy formulas and online calculators to help you figure out how long your asset will last and how much you can deduct per year.
Remember, it may not always make sense to take a deduction, especially if it’s for a purchase you would not have made anyway.
Instant asset write-off
Last year’s $20,000 instant asset write-off has been extended for at least another year. For eligible businesses and purchases, this means you can claim back the full value of a new asset purchase in the year that it is made, rather than depreciating it slowly over its life — like a normal capital expense. There has been some concern that businesses don’t know what to do with the instant asset write-off, but you can essentially use it to help fund any asset that you might need to help you grow or run your business — computers, cars or even a toaster.
Home office expenses
If you work at home, or your business is based out of your home, there are a whole bunch of tax deductions that may be available to you. You can claim back running expenses like electricity and cleaning, wear and tear on fittings and carpet, and even the use of room for your office. All of which can be put towards new equipment.
Further, work-related assets like computers, printers, software and even routers can be deducted immediately — provided they are worth less than $300. If you use some devices for both work and play, keep a diary to log your work time and you can claim that back too. If your laptop is used for work 40% of the time, for instance, you can claim back 40% of the depreciation of your computer. Check out the Tax Office website for formulas and calculators to work out what and how much you can claim.
Deducting the expense of tools isn’t only limited to employers. Employees can also deduct the use of personal tools, equipment and other assets for work. If you use the items for both work and pleasure, again, you will need to keep a diary. Otherwise, if it costs less than $300 you can go ahead and deduct it immediately, or deduct it over the lifetime if it’s more valuable. This might be a reason to get onto the BYOD trend.
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