The ads have already started for end of financial year sales for all sorts of things. This is particularly true for businesses – “buy now and get your tax deduction before June 30” is the typical advertisement.
So, is there a real benefit in buying before June 30 or is it just a clever marketing trick?
Well, it depends on a number of factors.
From the perspective of obtaining some form of tax benefit, the factors on which it depends include the following:
1. Is the item a capital good such as a car or machinery? If so, then there is probably very little tax benefit in buying it before June 30 (as opposed to after June 30).
This is because generally you can’t claim a tax deduction for the full cost of a car or plant and machinery. All you can claim is depreciation and depreciation is generally worked out based on the useful life of the asset (this could be 10 years) and time you held the asset during the particular year.
So if you bought it on June 30 (using the above example) you would only be entitled to claim a deduction for 10% of the item each year for 10 years. If you bought the item on June 30 then you could only claim a deduction for one day (out of 365 days) for the 10%. For example, a $100,000 asset would give you a deduction of $10,000 per annum. If you acquired the asset on June 30 then you could claim 1/365th of $10,000, or $27.40.
2. However, there are special rules for “small business” entities and these are generally more favourable.
A “small business” taxpayer is one with turnover of less than $2 million for the current and/or the previous income year. This threshold applies to all businesses you own, so if you have more than one then you will need to add their turnover together.
The concessions are generally as follows:
a) Immediate write-off for most depreciation assets costing less than $6500 each. However, please note that this was to be reduced to $1000 from January 1, 2014 but the legislation to effect this is tied to the repeal of the mining tax and has not yet been passed by Parliament. It is therefore unclear whether the legislation will be passed and if so, whether the reduction to $1000 will be backdated to January 1, 2014 or takes effect from the date the legislation is passed. This will depend on the composition of the new Senate from July 1.
b) The “pooling” of most other depreciating assets (irrespective of how long they are expected to last) and obtain a 15% deduction for the first year (regardless of when it was purchased during the year) and 30% for subsequent years.
c) Claim an accelerated initial deduction for motor vehicles. However, please note that this was also to be reduced to $1000 from January 1, 2014 but the legislation to effect this is tied to the repeal of the mining tax and, as mentioned previously, has also not been passed by Parliament.
d) If you make a pre-payment for an expense that lasts less than 12 months (e.g. a fortnightly advertisement in the papers from now to December) you can claim all of it immediately and it does not need to be proportioned.
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