With the end of the 2021/22 financial year fast approaching, you’re probably considering ways to trim your business’s tax bill, and it might even involve your SME borrowing some money.
Tax law is multi-layered, so speaking with your accountant or registered tax agent to clarify what your business can claim in the run-up to 30 June 2022 is generally a sensible move.
Take advantage of a significant tax break
There is a range of legal tax minimisation strategies available to businesses, such as paying your employee super contributions before 30 June and prepaying expenses. However, we’d urge you to consider ways to take advantage of the ‘temporary full expensing’ (TFE). This legitimate tax scheme lets businesses claim the total cost of eligible capital assets instead of depreciating them over time.
The TFE works similarly to the beefed-up instant asset write-off introduced in the early days of COVID to get businesses spending. A fundamental distinction is that the instant asset write-off was scaled back to $1,000 from 1 January 2021, while the TFE, introduced in October 2020, has no limit on deductible asset prices.
When announcing the TFE eighteen months ago, Federal Treasurer Josh Frydenberg described it this way: “A trucking company will be able to upgrade its fleet, a farmer will be able to purchase a new harvester, and a food manufacturing business will be able to expand its production line.”
Other TFE assets eligible for an immediate deduction include computers, tablets, tools for use on a worksite such as drills, ladders, toolboxes, equipment like a fridge or a grill, phones, point of sale systems, or any equipment utilised in the running of a business.
The exception is passenger vehicles designed to carry a load of less than one tonne and fewer than nine passengers. These vehicles have an upper limit for tax in the 2021/22 financial year of $60,733[i]. However, if you purchase a light commercial conveyance such as a ute, van, or truck that does not meet the passenger car criteria, you can deduct the total cost of the vehicle come tax time.
Businesses must have an aggregated annual turnover of less than $5 billion to be eligible. If the equipment purchased is second-hand, annual turnover can’t be above $50 million[ii].
Items claimed under TFE must be in place and ready to use by 30 June 2022. If you leave equipment orders until June, supply chain issues triggered by border closures can make this challenging. Fortunately, the ATO has probably taken supply chain issues into account and has extended the TFE until 30 June 2023[iii]. Still, if you want to take advantage of the immediate breaks now, you need to get your skates on now and start ordering.
The end of the financial year will creep up quickly, and if you require commercial finance to take advantage of the TFE, call AAP Finance today on 1300 141 453, and we’ll walk you through your lending options.
[i] https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Simpler-depreciation-for-small-business/Assets-and-exclusions/?anchor=Cars#Cars
[ii] https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Temporary-full-expensing/Eligibility-for-temporary-full-expensing/
[iii] https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-businesses/JobMaker-Plan—temporary-full-expensing-to-support-investment-and-jobs/
