The demand for reliable childcare services continues to surge, making owning and operating childcare centres a strategic move that positions owners at the heart of this growing demand while contributing to essential community support.
In contrast to industries that experience fluctuations tied to economic cycles, childcare services offer a more dependable income stream. The enduring need for high-quality childcare results in consistent occupancy rates and reliable cash flows. This inherent stability provides owners with a solid financial foundation, shielding them from the volatility that often characterises other sectors.
This article examines the benefits that investing in childcare centres provides to owners, including depreciation deductions and the Small Business Energy Incentive.
Unlock financial potential with depreciation
A significant financial benefit of investing in childcare centres lies in depreciation deductions.
Depreciation can be claimed on both a property’s structure and permanent assets (categorised as capital works deductions) and easily removable or mechanical assets (categorised as plant and equipment depreciation). Examples of capital works in a childcare centre could include things like sinks and basins, flooring and sand pits. Plant and equipment assets would be items like free-standing furniture, kitchen appliances and play equipment.
By claiming depreciation, owners can effectively decrease their taxable income, leading to enhanced cash flow and reduced tax liabilities. Childcare centres can yield substantial depreciation deductions, enhancing the financial appeal of these investments.
Small Business Energy Incentive
The Small Business Energy Incentive offers a pathway to align investment with sustainability goals.
Under the Small Business Energy Incentive, businesses with an aggregated turnover of less than $50 million can deduct an additional twenty per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy. Businesses can qualify for this incentive on a total expenditure of up to $100,000 for which the cost is incurred, between 1 July 2023 and 30 June 2024, with a maximum bonus deduction capped at $20,000.
Childcare centres can adopt energy-efficient technologies, accessing incentives that not only reduce operational costs but also contribute to a greener future. This enhances profitability while supporting responsible environmental practices.
Instant Asset Write-Off
The Instant Asset Write-Off allows small businesses using the simplified depreciation rules to claim an immediate deduction for the business portion of qualifying assets.
Under the Instant Asset Write-Off, businesses with an aggregated turnover of less than $10 million can immediately deduct the full cost of qualifying assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. This is on a per-asset basis, meaning multiple assets can be written off as long as they qualify.
Case study: Childcare centre applies available government incentives
In August 2023, “Harry’s Childcare Centre” undertook a facility upgrade, allowing the owners to qualify for both the Small Business Energy Incentive and the Instant Asset Write-Off. The upgrade involved the installation of new furniture, equipment, and energy-efficient assets, leading to a substantial reduction in taxable income and enhanced financial returns.
BMT illustrates the application of the Instant Asset Write-Off and the Small Business Energy Incentive.
Table 1: Application of the Instant Asset Write-Off
Table 1 demonstrates the application of the Instant Asset Write-Off and the assets installed. The implementation of the Instant Asset Write-Off provided an immediate deduction of $20,243 for eligible assets. For the purpose of this case study, the assets have been grouped together, however, the Instant Asset Write-Off is applied on an asset-by-asset basis.
Table 2: Application of the Small Business Energy Incentive
Table 2 illustrates the breakdown of how the Small Business Energy Incentive is applied to energy-efficient assets. Thanks to the twenty per cent bonus, an extra $3,092 was claimed in addition to the initial $15,461, resulting in a total of $18,553 for this incentive.
Overall, the owners of Harry’s Childcare Centre were able to claim a total of $38,796 in addition to their annual depreciation claim through the application of the Small Business Energy Incentive and the Instant Asset Write-Off. This allowed them to recoup a portion of the costs associated with the upgrades in the same financial year.
For investors seeking diversification and scalability, childcare centres offer a compelling avenue. With scalability as a foundational principle, you can expand your investment portfolio, explore untapped markets, and establish multiple revenue streams. The rising demand for quality childcare services positions your investment for sustainable expansion and long-term prosperity.
To gain further insights into how investors can effectively integrate depreciation into their investment strategies, reach out to BMT on 1300 728 726 or Request a Quote.