Fast Lane: Don’t get sucked in to the end of financial year

Fast Lane: Don’t get sucked in to the end of financial year

In case you hadn’t realized, it’s the end of financial year this week.

Of course you probably would be living under a rock not to be aware of this, given the endless end-of-financial-year sales and Treasurer Joe Hockey’s exhortations for small business to spend, spend, spend.

But does everything really need to be done right this second?

Last week Hockey warned time was running out for small businesses “to go out and have a go this financial year”, buy an asset up to $20,000 per item, invest that in your business and get a 100% deduction on 1 July.  

“It will continue for a further two years after that, but now is the time to go out and have a go.”

But before you go out on a frenzied spending spree, take a deep breath and do the numbers.

Modelling by economists has shown some unincorporated small businesses may actually be worse off using the small business asset write-off rather than the existing depreciation rules for small businesses.

Even if you don’t fall into this cohort you need to consider whether you are getting a genuine discount by buying before June 30 or if it’s just clever marketing.

If you are planning to buy lots over the next few days you need to ensure you actually have the cash or have considered the impact on the cash flow of your business down the track.

Grant Field, chairman of accounting firm MGI, says for many businesses, the cash flow crunch will come in a month or so.

He recommends using long-term funds to acquire long-term assets, not working capital.

This means borrowing money if you are buying plant or equipment that will last for years.

And the real clincher, which some people seem to have missed altogether, is that you need to spend the cash to get the asset write-off.

For example, the $20,000 write-off is not taken off the tax bill of your small business. Instead, it’s a deduction from income.

So if you have a company structure with a tax rate of 30% you still need to spend a dollar to get the 30 cents in tax, so you are still 70 cents out of pocket.

Despite what some advertising campaigns may have you believe, there’s no such thing as free money.



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