TAX PLANNING 2020
TIP #7 – FIXED ASSETS
2020 is a year like no other! With Covid-19 Stimulus Measures in place, businesses have the ability to tax claim fixed asset purchases or the balance of their General Small Business Pool where the value is less than $150,000. For most small businesses, this presents a healthy tax break.
If your business is approaching financial year end with excess profit, a useful way to absorb this profit for tax saving purposes is to bring forward any planned fixed asset purchases that you may have. By planned fixed asset purchases we mean necessary spend on equipment that is planned for some point in time in the near future.
Do you have excess profit?
Think about any planned asset spend that you may be able to bring forward to before 30 June.
Here’s what to do:
🚩 Ensure your accounting file is up to date and banks are reconciled to the day
🚩 Ensure your fixed asset register is up to date, and transfer current year additions to your Small Business Pool
🚩 Run depreciation in your accounting file and assess the balance of your Small Business Pool
🚩 Display report Profit & Loss from 1 July 2019 to date
🚩 Assess the balance of your Small Business Pool, and if below $150,000 deduct the balance from your profit
🚩 If there is still excess profit, list your upcoming planned fixed asset purchases, and deduct those that are under $150,000
🚩 Calculate the tax savings on the fixed asset additions at the current company or individual tax rate (depending on your business structure)
🚩 Decide whether the tax savings are worth implementing your brought forward planned fixed asset purchases strategy
What to be mindful of when bringing forward planned fixed asset spend?
✅ Ensure your planned fixed asset purchases are necessary, so that you are not buying unnecessary assets purely to save tax
✅ Assess your cash flow, if bringing forward asset purchases is likely to strain your cash flow this may not be the right time to implement strategy as tax savings take time to realise
✅ Spending during the Covid-19 pandemic may not be the right choice for your business, it may be wiser to nurture your cash
✅ If your planned spend are fixed assets over $150,000, these items are claimed over time, so consider if bringing these forward will achieve the tax saving result you are aiming for
✅ Note the special write off rules around Covid-19 that allow full claim of fixed assets under $150,000 where purchased between March and June 2020
*** IMPORTANT *** If you do not have a TAX PLAN 2020, get in touch and ensure you are well prepared in advance of financial year end. As a result of Covid-19, businesses are in line for material tax savings never experienced before, all designed to assist your business through the pandemic.
If you have any questions at all regarding financial and business matters, please don’t hesitate to contact us.
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