Tax Deductions for Small Businesses
by Graham Lalor, Taxation Accountant
Small businesses¹ need to act quickly if they want to access the additional tax deduction for eligible, new, tangible depreciating assets. This tax deduction is temporarily available to small businesses (including sole traders) who buy eligible assets before 31st December 2009.
If you operate a small business, you can claim an extra 50 per cent tax deduction on the cost of eligible assets over $1,000. Different tax deduction rules apply to businesses that turn over $2 million or more a year.
These tax deductions are in addition to the deductions for depreciation you can already claim for assets you use in your business.
What can I buy?
The tax deduction covers new, tangible, depreciating assets such as:
• Cars, vans, trucks and other business vehicles
• Computer hardware (not software)
• Tools
• Furniture
Keep in mind, you must use the asset mainly² in Australia and mainly in your business.
What about cars?
There are four standard tax deduction methods available to claim for your business vehicle costs in a normal financial year. The methods are:
1. Log book
2. One third of running expenses
3. 12 per cent of original purchase price
4. Cents per kilometre (less than 5,000 km’s)
To access the additional tax deduction available for small businesses before 31st December, only individuals who use methods one to three above will be eligible for this deduction.
What are the deadlines?
To qualify for the 50 per cent tax deduction for small business, you must buy the asset between 13th December 2008 and 31st December 2009 (and, if applicable, install the asset by 31st December 2010).
A typical scenario
Mary is a sole trader and small business owner. She buys a computer for her business in October 2009, and installs it straight away. As the computer cost $2,400, Mary will be able to claim an additional $1,200 tax deduction (50 per cent of $2,400) in her 2009/10 income tax return.
After applying Mary’s marginal tax rate of say 31.5 per cent, this tax deduction would reduce the amount of tax paid by $378. This, in effect, reduces the cost of the computer to $2,022 ($2,400 less $378).
In addition, Mary can also claim the normal tax depreciation deduction for the computer cost of $2,400.
At the John Hopkins Group, we have qualified Taxation Accountants who can ensure you take advantage of all tax deductions available to you and your business. If you would like to make an appointment, please phone our Client Liaison Officer on 1300 726 082 or email now.
Footnotes:
¹ 'small business’ is a business whose turnover is less than $2 million a year
² 'mainly’ is more than 50 per cent of the time
For more information, or to arrange an appointment with a John Hopkins Taxation Accountant, please contact our Client Liaison Officer on 1300 726 082 or click here.