Tradies and other business operators have been warned to do their homework before spending big to make the most of generous new tax concessions unveiled in last week’s Federal Budget.
While generous new rules on instant asset write-offs will make investment more attractive, myriad rules of business tax deductions and financial management still apply to big purchases.
Pitcher Partners managing partner Leon Mok said business operators should ensure any acquisitions being considered were good for the business and were legitimate business-related tax deductions.
“You first have to make a rational decision that is right for the business and then consider whether the tax outcome is suitable,” Mr Mok said.
Federal Budget measures announced last week included removing a $150,000 cap on the value of newly purchased equipment that could be instantly written off. The Government had lifted the cap from $30,000 in COVID-19 emergency measures in March.
The Budget also included extending until December 31 a provision allowing most businesses to instantly write-off second-hand business assets costing up to $150,000.
The instant write-off provisions apply to most business-related equipment, including trucks and two-door utes, but do not apply to assets such as buildings and fixed garages.
And people thinking of buying a flash SUV or four-door ute for their business should not forget there is a $59,136 limit on the annual deduction on vehicles designed to carry passengers.
Companies have been given the bonus incentive of new loss carry-back provisions. This will allow companies to use losses incurred in the 2019-2020, 2020-2021 and 2021-2022 tax years against taxable profits made in 2018-2019 or later years.
Mr Mok said while it might be tempting for a company director to buy a lot of equipment to make a big loss and then get their 2019-20 tax back, sensible cashflow management was necessary. He warned a company filing through a tax agent might not get the big refund until 2022.
RSM tax specialist Con Paoliello said the new tax incentives may well bring forward purchases by businesses that could afford to spend money.