Small business tax break

[astrovic]

I don't think this has been posted here before, but I thought there's no reason why I couldn't encourage some unnecessary GAS by mentioning to anyone not aware that there is presently a tax break on offer - namely business can get a 50% upfront deduction on capital expenditure, so long as the commitment to purchase is made before 31 December 2009.

This means you can depreciate your plan and equipment in the usual way, but also you can claim a 50% deduction in the year of purchase. That's a pretty significant tax saving.

If that was all gobbledygook to you, it probably means you should talk to your accountant about it (if he hasn't pointed it out to you already) or aren't in business or need to at least follow this link - http://www.ato.gov.au/businesses/conten ... 193781.htm

If this is something that appeals, I strongly recommend getting professional advice before ordering that Neve console you can't afford even with the tax break.

This public service announcement was brought to you by kind folk injecting 1176's directly into their arteries.

[Linear]

...the important caveat being that it applies to only NEW capital equipment. Second hand equipment unfortunately doesn't qualify.

Damn shame it doesn't!

Chris

[13thbeach]

Aww! that sucks... But good if you buy new stuff!!!!.......but i don't so it still sucks.

[rob]

so is a pair of Neve modules racked up for you by Pro Harmonic a new or secondhand item?? Float that one past the tax dept!

[Linear]

Yeah we were wondering that. I guess the problem would be that you'd have to invoice for the whole amount, not just the cost of racking up.

In other words if Rob buys the unracked modules, racks them up and sells them whole to you in a new case containing some new components (power supply, case, knobs) then it would classify as a 'new' purchase. The cost of racking your parts wouldn't qualify.

You could probably 'give' the parts to rob, say they're not worth anything as-is and get him to sell it back to you in complete form - who knows though.

I did run this by my accountant, it's a grey area but he said you'd likely get away with it if you had a receipt from Proharmonic for the whole item.

Chris

[rob]

there you go!...As Chris says "'give' the parts to rob, say they're not worth anything as-is "

I like it!

I can always write an invoice that says " supply of racked neve preamps " $XXX

only 27 more racking days left

[astrovic]

Yeah...

The asset has to be something physical, like plant and equipment, and it has to be new – meaning that it hasn’t already been used anywhere, by anyone, for any purpose (except for reasonable testing and trialling).

but - what are we doing when we buy an old neve reamp and racking it? Is that a repair or what?

Are repairs eligible for the tax break?

Generally, expenditure incurred in repairing an income producing asset is immediately deductible under section 25–10 of the ITAA 1997, and thus would not be eligible for the tax break. Conversely, substantial improvements, additions, alterations, modernisations or reconstructions are generally not repairs.

So don't shut the door just yet, guys.

Let's put it this way, if you're planning on investing in a serious enough amount of gear within the relevant period, or building/upgrading your studio, it's worthwhile to spend a few bucks to have a chat with an accountant about whether this tax break can be used to your advantage.

[Linear]

I don't see this as shady - just a reality.

I think you might want to get an accountant's second opinion on this.

There are strict rules governing what is considered capital equipment, and what is considered trading stock. They are classed very differently and the worst time to find out what is what is during a tax audit.

If you utilise a piece of capital equipment you have purchased to earn income, then it is classed as capital and the tax office allows you to write the cost of the item off over the expected lifespan of it.

If you purchase goods for the purpose of on-selling or manufacturing, then it is classed as trading stock and cannot be written off over time. Yes the purchase price is tax deductable but there are strict guidelines around tax time for stocktake (esp June 30), and you need to be able to account for all purchased and sold goods (and hence you would pay tax on the profit you make from it). It is a world of pain if you get audited and don't have accurate records.

So for example if you purchase $100k worth of stock over 3 years (ie build a studio) and write all of it off immediately, then stop buying stock and don't sell any, then there'd be a pretty good chance you'll be outside normal ATO business parameters and you're asking for an audit. Not to mention that you'd be up for adding the full sale price on to your taxable income when you go to sell it all as you'd have no purchasing tax credits to offset it...

Any accountants on this board???

Chris

[musikwerks]

Without doubt I will turn around and sell it sometime in the future. So I use it in the meantime.

By that logic a Ferrari dealer can buy an F40 and drive it for years himself and claim the car, 100%, as a write off because he'll sell it... eventually.

Shady indeed. I'd get a new accountant before you wind up getting audited by the ATO.

[Chinagraf]

[quote="musikwerks"]By that logic a Ferrari dealer can buy an F40 and drive it for years himself and claim the car, 100%, as a write off because he'll sell it... eventually.

Shady indeed. I'd get a new accountant before you wind up getting audited by the ATO.[/quote]

And if said Ferrari dealer did something like that, I doubt he would be talking about it on a public forum, with his real name and ebay store deatils attached to the post....

[musikwerks]

As soon as the job title you declare on your tax return and your "deductibles" don't jive, it's going to raise a flag.

Tax fraud = jail time.

Don't drop the soap.

[vanderlae]

You cannot include Software purchases as capital investments unfortunately, I think this is extremely dissapointing given that a good bank of software can oftentimes cost as much as hardware. A few Waves bundles for instance and there's a few thousand dollars right off the bat. It would be ideal if they made a distinction between software for normal use and software for the requirement to conduct business.

To quote the ATO:
What can I buy?
The tax break is for ‘new, tangible depreciating assets’. The asset has to be something physical, like plant and equipment, and it has to be new – meaning that it hasn’t already been used anywhere, by anyone, for any purpose (except for reasonable testing and trialling).

You could buy:

cars, vans, trucks and other business vehicles
computer hardware (but not software)
tools
furniture
capital improvements to existing machinery and equipment.

[Chinagraf]

Yes, but isn't software depreciable on a short time scale already, like in one year or something? I'd have to check with my accountants, but it's defintely shorter than gear.

[vanderlae]

Yes, but isn't software depreciable on a short time scale already, like in one year or something? I'd have to check with my accountants, but it's defintely shorter than gear.

Actually yes, I remember something along these lines the last time I met with mine. I've asked to clarify that.

[vanderlae]

Actually yes, I remember something along these lines the last time I met with mine. I've asked to clarify that.

It's been clarified that software is depreciated at a rate of 40% the first year, 40% in the second and 20% the third.

thanks.