The $20,000 tax deduction can help many self employed people make the plunge into greater growth for their business. Well, that's what the government is hoping. Many self employed people have future purchases on the table and this deduction should help many bring those purchases forward. Because, until the 30th June 2017, the Australian Taxation Office will let small business owners and sole traders with an ABN holders deduct assets costing $20,000 or less. You may have already heard all the details of the tax advantage, but we also pulled out our calculators to understand how much an advantage the $20,000 can be.
When we worked through all our numbers we were very surprised on how advantageous that this new tax deduction could be. Our example are based on assumptions of an income of $100,000 with estimated tax payable of $24,947 (This tax figure came from using the ATO simple tax calculator for 2014-15). If you were to buy a car of $19,999 plus GST, the total being $21,998.90, your taxable income would be reduced to $80,001. The tax on the taxable income of $80,001 would then be $17,547.37. A tax savings of $7,399.63. You would also get your GST input credit for the purchase so you can add another $1,999.9. So a total of $9,399.53 back to you.
If you assume that average loan repayments on a $20,000 car is around $441 per month and divide that by the tax advantage, you then come out 21 months ahead. So essentially you get to drive your car for 21 months on all the money that you saved by taking advantage of the $20,000 tax deduction.
Another fantastic point is that the tax deduction can be claimed immediately. So there's no agonising over depreciating tax tables. And if you have a liability and owe the tax office money, you can be happy to have less going to the tax man and more money going into your business to make it grow. Pooling of assets is allowed but you don't get the immediate tax deduction, it happens over time, and if you have losses, then your deduction is added to your losses and rolls over to your next financial year.
The $20,000 deduction can make a real difference to small businesses, especially if these purchases were on the planning table already. For many small businesses and self employed, this deduction may get them to the next level in their business. The tax deduction ends after the 30th June 2017 and it is rumoured to be reverting to the former $1,000.
At Mango our goal is to not only get you a loan but to come up with smart strategies to give you the edge. We will go the extra mile so you get the most out of your borrowings. That could be helping you to pay your loan off sooner or structuring your debts to protect your assets.
We want to let our clients know that although many know that we have always done mortgages, many clients may not realise that we can also do other types of finance. We are now regularly doing car and equipment finance and we also can organise loans for Self Managed Super Funds. So give us a call, if you have any questions and to arrange to take advantage of the $20,000 tax advantage.