Again Faster Tax Time 2015

Author: Again Faster   Date Posted:20 August 2015 


This page provides the below commentary with the caveat that each taxpayer has the responsibility for establishing their own tax position. It would still be sensible for each entity to obtain independent advice about their tax obligations before taking a position.

 

It's Tax Time.  So you're probably wondering what are my options to reinvest in my business?

 

You’ve probably got your tax cheque back and you’re unsure about the best way to spend it. We’ve got Luke Goss – Finance Manager for a large Australian Company and CrossFitter – to give you guys a few tips on how to get the most of your return.

 

How can fitness businesses best take advantage of the government tax break?

 

Businesses with an annual turnover under $2 million can claim immediate tax deductions for as many purchases amounting to $20,000 and below between now and June 30, 2017, rather than having to claim those purchases as deductions spread over several years.

 

In the fitness industry, there is no limit on the number of items you can purchase. This is a huge increase from the current instant asset write-off threshold of $1,000. So if you currently run or you’re thinking of starting a gym, now is the time to act. This small business package is extraordinarily generous.

 

For a small, incorporated business, and assuming the 28.5% tax rate, its tax bill would be reduced by $5,700 in the first year, as compared to only $855 under the existing regime. This is a total upfront benefit of $4,845, and supports the government’s argument that the change will improve cash flow for small business as compared to existing arrangements.

                                                 

 What are PROs and CONs of spending the money or reinvesting it back to your business?

 

With so many CrossFit boxes around, you need to stay on top of your game. By reinvesting in your business you can improve the satisfaction of your current customer base at the same time attract new customers. You can use your tax returns to immediately work on the growth and improvement of your gym facilities. Remove old, outdated and dangerous equipment and replace with the best and latest in the industry. This is a way to stay constantly active in order to generate more business.

 

On the flipside, added finance may be required and possibly difficult to secure. The tax is not a guaranteed return. You must be profitable and have paid taxes accordingly to get a return. Tax breaks and advantages are aimed at small business. They do nothing for start-ups who don’t pay tax for many years. If you do decide to reinvest, your cash flow may be strained so it is important not to overcommit.

 

Again Faster Australia does have finance options available here, if it suits your position.

 

How can businesses maximise the benefit of investing their return into their business?

 

Use your tax break to set up your business for success. Reinvest in your business. By doing so, you gain the assets you require and minimise your tax expense. Solely focusing on profit maximization, and not having the right assets or investment back into the business, can be the biggest cost of all. Profit obsession can deliver poor satisfaction, loyalty, efficiency and decreased business growth.

 

By investing in your business, you are creating value for you and your customers. As a business owner, you are spurring growth in your company by investing in new equipment. In turn, customers will be able to enjoy the upgraded facilities. Higher customer satisfaction increases loyalty. New equipment and facilities are also great marketing tools to attract new customers. The effects of reinvesting could spell success for your business.

 

Anything else that might be helpful for business owners to know?

 

Business owners should note that this measure doesn’t change the eligibility for tax deductions of these assets. It simply changes how quickly a small business is able to receive the tax deduction.

 

Under the existing simplified depreciation rules for small business, an asset costing over $1000 would be depreciated at 15% for the first year, and 30% thereafter, until the taxable value of the asset pool is $1000 or less, at which point the full amount can be written off.

 

For a $20,000 asset, this would mean a $3,000 deduction would be allowable in the first year, and it would take around 10 years to fully depreciate it for tax purposes. This compares to a $20,000 deduction in the first year under the proposed measure.

 

Bear in mind, too, that small businesses fall into two general categories: those that are incorporated (companies), and those that aren’t (sole traders and partnerships). The taxable profits of small companies are taxed at a flat rate, which – assuming the announced 1.5% tax cut passes – will be 28.5%.

 

Unincorporated small businesses don’t get the 1.5% tax cut, as their income is included in the assessable income of the owners and taxed at their marginal rate of tax. Instead they’ll get a tax discount of 5% of business income up to $1000 a year.

 

Here, we’ll focus on small companies, where the flat rate of tax makes analysis easier.

 

For a small, incorporated business, and assuming the 28.5% tax rate, its tax bill would be reduced by $5,700 in the first year, as compared to only $855 under the existing regime. This is a total upfront benefit of $4,845, and supports the government’s argument that the change will improve cash flow for small business as compared to existing arrangements.

 

As a last reminder, Luke stresses that, “that each taxpayer has the responsibility for establishing their own tax position. It would still be sensible for each entity to obtain independent advice about their tax obligations before taking a position.”

 

Know more on how you can use your tax returns to your advantage. Visit our website www.againfaster.com.au for more information.