Monthly tax tip:
Depreciation is a tax deduction whereby an asset is depreciated over its effective life. This makes sense as the asset will be used in multiple financial years and so the claim for it should also be spread over multiple financial years. Small businesses can choose to use these general depreciation rules or the simplified depreciation rules. If the small business chooses the simplified rules, then they can usually claim a higher deduction in the year of purchase, claiming the asset over less financial years. This can be a great option for small businesses that wish to pay less tax after spending money on new assets. However, the con to using the simplified rules is they must be applied to all assets, even if that results in a taxable loss. A small business can choose to stop using the simplified rules but then must use the general rules only for five income years before using the simplified rules again.
Due to the stimulus measures brought out by the Government, there are more options and more benefits for small businesses. The temporary full expensing measures mean that there is no write-off limit so the cost of a new asset can be claimed in the year of purchase up until 30 June 2023. The “lock out” rules have also been suspended to 30 June 2023 which allows a small business that has opted out of the simplified rules to re-enter before the five year period. These options should be discussed with us during tax planning or tax time to calculate the best taxable outcome.
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