A question I often get asked at the beginning of the new financial year is: “Should I replace or buy new equipment and assets?”
This questioning is mostly prompted by the May federal budget, which announces incentives relating to the next financial year; namely, for 2012, an immediate write-off for each eligible business asset up to the value of $6500 per asset.
The aim of the government in releasing these incentives is to increase spending. But to work out whether buying assets will be valuable to you, you first have to look at your individual circumstances.
Firstly, spending $6500 to get a $6500 tax deduction in that same year is a great boost to your business but spending it for the sake of getting a tax deduction is not a smart business decision.
Before buying any items, check that your cash flow will permit you to do so. That is, you want to make sure that you can sustain your business and its other debts before committing yourself to more purchases.
If you are looking to expand your business and have the cash available to spend, now is a great time to buy new assets and get the immediate tax write-off.
If you have only basic equipment and tools and think it is time to upgrade along with having the cash and a steady business trade, then now could also be a great time for you to upgrade and also claim the tax deduction.
Don’t forget that the tax deduction is also saving you $1950 in tax (based on 30-per-cent tax bracket).
If you are running a business that doesn’t really need anything new but you have heard about this incentive and would like to reduce your tax bill (and are able to spend the money) then I would consider making the spend.
However, if you are just buying something new to get the tax deduction and you don't need to save tax nor really have any spare cash, then obviously this isn’t a great business decision.
If you require that new equipment or to replace those larger items and have the cash flow, then – yes – now is a great time to purchase so you can claim the full tax deduction to the value of $6500. It is also a good time to buy that new car, since the government has introduced an instant write-off for the first $5000 expended on a new or used motor vehicle. Of course, before making any big financial decision it’s advisable to seek professional advice.
Will you be taking advantage of the government’s tax incentives this financial year?
“ If you are looking to expand your business and have the cash available to spend, now is a great time to buy new assets and get the immediate tax write-off. ”
Brad Callaughan is a specialist in taxation, accounting and business advisory. He is the managing director of Callaughan Partners that was formed to deliver and exceed client’s expectations, whilst charging upfront fees.
