Owning a business, big or small, can present many challenges to business owners.
To be sustainable, business owners must know some of the technical intricacies of owning a business. From maintaining accruals, paying taxes, to appropriate insurance and claiming reliable depreciation deductions, successful business owners need to be true all-rounders.
One of the key things that business owners miss is claiming depreciation. This is because depreciation isn’t compulsory (unlike tax) and it’s an easily hidden non-cash deduction.
What does depreciation mean in business?
Depreciation is the natural wear and tear of structures and assets over time. Business owners can depreciate any asset they own and use for their operations.
Depreciation of business assets provides a lucrative tax deduction each financial year. Depreciation can save business owners thousands, sometimes even hundreds of thousands, of dollars.
Sceptical? See this example of a poultry farm where depreciation alone resulted in a tax savings of $111,960 in the first financial year.
Whether the business is the owner of their building or a tenant they can still claim depreciation. In the instance where they are a tenant, they can claim depreciation on assets they own.
How does depreciation work for businesses?
Assets can be depreciated under two categories, capital works and plant and equipment.
Capital works deductions can be claimed on a building’s structure and any fixed fittings. For example walls, doors and sinks. Capital works deductions are claimed at a rate of 2.5 per cent up to 4 percent depending on the industry type each financial year.
Plant and equipment deductions can be claimed on the easily removeable assets. For example carpet, shelving and tools. These deductions are claimed at a rate based on the asset’s effective life, as an instant asset write-off or in a depreciation pool.
What does depreciation mean for small businesses?
The underlying factors of depreciation apply for all types of businesses, big and small. However, the Australian Taxation Office recognises that small businesses are in a different position to their larger counterparts and have a number of depreciation incentives in place for them.
The general small business pool is available for small businesses with an aggregated turnover up to $10 million. Plant and equipment assets placed in the pool are depreciated at an accelerated rate, providing returns to the business faster. When the total of a small business pool is less than the instant asset write-off threshold, the business can deduct the entire balance.
Incentives specifically for business owners
During this unprecedented time, the government has a number of new and increased depreciation incentives for businesses.
The government announced a full-expensing policy in the latest federal budget. This allows more business to instantly deduct plant and equipment assets purchased and first installed from budget night until 30 June 2022.
BMT Tax Depreciation has been the commercial depreciation specialist for over twenty years. A commercial BMT Tax Depreciation Schedule is tailored for each business and applies all incentives to ensure claims are maximised and compliance is maintained.
To learn more about what depreciation means for businesses, contact BMT on 1300 728 726 or Request a Quote.