What is a depreciation schedule for a business and how does it boost cash with no extra work?

BMT team — Mon, 02 Aug 2021 04:13:03 +0000

Successful business owners make the most of what is available to them. Through the peaks and troughs of operating a business, owners may at times find themselves relying on tax deductions. Tax deductions are almost always the result of incurred expenses. Depreciation is the only exception, meaning no money needs to be spent to claim it. To take advantage of it, a business needs a depreciation schedule. In this article, we discuss: What is a depreciation schedule for a business? What happens if the business changes location and updates their fit-out? How a business depreciation schedule is different to a residential schedule What is depreciation and how does it boost the cash flow for landlords and tenants who run a business? Depreciation is the natural wear and tear of a property and assets over time. Businesses can claim depreciation as a tax deduction on the active business assets and property they use. What is a depreciation schedule for a business and why do businesses need them? A tax depreciation schedule is critical to claiming the maximum amount of depreciation deductions accurately. A tax depreciation schedule is prepared by a specialist quantity surveyor, and it outlines all depreciation deductions available for the lifetime of the business’s assets. Both capital works and plant and equipment deductions will be outlined in the schedule. Capital works are claimable for anything that is structural or fixed, like a physical building or fixed assets such as door handles and sinks. Plant and equipment deductions can be claimed on easily removable or mechanical assets like vehicles, furniture and tools. Once the schedule is prepared, a business owner can take it to their accountant who will use it each tax time to determine the depreciation deductions available to them. What happens if the business changes location and updates their fit-out? Two key things happen from a depreciation perspective when a business changes location and updates their fit-out: 1. Scrapping: They can ‘scrap’ the fit-out that they disposed of. Scrapping is the taxation process of writing off the residual depreciable value of removed assets and claiming it as an instant deduction. For example, if a business disposed of floor coverings that held a residual depreciable value of $1,000, they could claim it as an instant deduction in the same financial year for the loss incurred after performing a balancing adjustment calculation. But to claim this effectively a tax depreciation schedule must have been prepared sometime before the disposal. 2. New schedule: If the business owner has installed an updated fit-out in their new location, they will need to obtain a fresh tax depreciation schedule. A specialist can prepare this and conduct a site inspection at their new location to ensure the schedule is prepared accurately and depreciation can be claimed to its full potential. How is a tax depreciation schedule for a business different to one for a residential property investor? The two key groups that can claim depreciation are property investors (both commercial and residential) and business owners. This is because their activities meet the requirement of using property and assets to produce income. But it’s important to note that a depreciation schedule is very different for a business than it is for an investor. While the fundamentals are the same, with both parties able to claim deductions for the assets they own at the property, business tax depreciation has further intricacies. Firstly, a business tax depreciation schedule applies industry-specific legislation. This means not only does an asset depreciate differently compared to if it was in a residential house, but depreciation can also change based on the industry it’s located in. For example, freestanding furniture in a retail store holds an effective life of ten years, while freestanding furniture in a pub’s drinking area has an effective life of five years. To make things even more complicated, if the same freestanding furniture (chairs, for instance) was instead located in a pub’s dining area such as the bistro, its effective life varies again to be eight years. Further industry-specific depreciation rules, such as primary production depreciation can be applied to unique industries. For example, primary producers (farmers) can claim special depreciation rules on certain assets used for their operations including fencing, fodder storage, water facilities and horticultural plants. Legislative requirements that apply to residential properties and not businesses also exist. For example, 2017 legislation changes that disallow some second-hand property owners to claim depreciation on previously used plant and equipment assets doesn’t apply to businesses. This means a business owner can claim depreciation on second-hand assets. Businesses also avoid legislation that disallows residential property owners to claim depreciation on capital works construction before 15 September 1987. Instead, businesses have an extra five years and can claim any capital works constructed from 20 July 1982. When preparing a business tax depreciation schedule, BMT will ensure that every government incentive the business is eligible for is anticipated and included when preparing the schedule. This includes temporary full expensing and the backing business incentives. Now that you know what a depreciation schedule is for a business, contact BMT Tax Depreciation on 1300 728 726 or Request a Quote to learn more.

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Business tax deductions to boost cash every financial year

BMT team — Mon, 28 Jun 2021 07:01:32 +0000

The end of financial year serves as a good reminder for claiming tax deductions. Knowing what is and isn’t available as a deduction will set business owners up for success in the new financial year. While some deductions for businesses are similar to property investors, others are quite unique. In this article, we will cover the following business tax deductions: Repairs and maintenance Motor vehicle expenses Business travel Employee wages and super contributions Other operating expenses Depreciation deductions What makes something a business tax deduction? There are many tax deductions out there, but not everything will be eligible. The Australian Taxation Office (ATO) applies three golden rules when determining business tax deduction eligibility. The tax-deductible expense must be for business use, not private. If the expense is partially used for private use, the owner can only claim the portion used for business purposes. The business owner must have records to substantiate the deduction. Key business tax deductions Hundreds of tax deductions are out there to be claimed. Deductions can change depending on the type of business and how it’s set up. Here are six key categories that are applicable for most businesses. 1. Repairs and maintenance The ‘repairs and maintenance’ umbrella is large. It covers expenses associated with the upkeep of the assets needed for business operations. Examples could be painting, maintaining plumbing, replacing damaged parts of assets like broken glass and repairing machinery. Further rules apply to claiming repairs for machinery, tools and property. If the repair is made immediately after acquisition, it can’t be claimed. The ATO’s rationale for this ruling is that the need for the repair is a result of the item’s condition when it was purchased, not the business’s operations. 2. Motor vehicle expenses Motor expenses include fuel, repairs and services, the interest on a motor vehicle loan, insurances and registration. Business owners can also claim the depreciation on a vehicle’s value – but more on this later. 3. Business travel These are the travel expenses outside those spent exclusively on operating a business vehicle. Examples are airfares, public transport expenses, car hire fees and overnight business accommodation. Meals for overnight travel also fall under this category. 4. Employee wages and super contributions Employee wages and salaries are a type of operating expense; therefore they are tax deductible. How they are claimed depends on whether the business is a partnership, trust or company. But generally, to claim them a prerequisite is to comply with pay-as-you-go withholding and reporting obligations for all employee payments. Businesses can also claim a tax deduction on the super contributions they make for their employees. To be eligible, the contributions must be made on time and into a complying super fund or retirement savings account. 5. Other operating expenses The list of other general business operating expenses is endless – these are the everyday expenses related to running a business. Just some examples include utilities, advertising, sponsorships, stationary, insurance premiums, waste removal, legal expenses and the cost of running a commercial website. 6. Depreciation deductions Last but not least is depreciation. Depreciation is the natural wear and tear of property and assets over time. Business owners can claim depreciation as a tax deduction on most assets they own and use for their business, including tools, vehicles, furniture and property. A business’s easily removable and mechanical assets are classified as ‘plant and equipment’ for depreciation purposes. Usually, the yearly depreciation claim is based off the asset’s effective life. However, a policy called temporary full expensing is currently in place until the end of the 2022/23 financial year. This allows businesses to instantly deduct any eligible plant and equipment asset purchased after 7.30pm on 6 October 2020 and before 30 June 2023. Find out more about temporary full expensing here. BMT Tax Depreciation has been working with Australian businesses for over twenty years, helping them achieve the maximum depreciation deductions possible. To learn more about BMT’s commercial services, contact the team on 1300 728 726 or Request a Quote.

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What is a depreciation schedule for a business and how does it boost cash with no extra work?

Business tax deductions to boost cash every financial year