Interesting new tax breaks for small businesses... helpful for starting up!

[jonharrisphotography]

http://www.smh.com.au/business/federal-budget/federal-budget-2015-how-do-i-claim-this-20000-tax-break-20150512-1mzgpb.html

If you are contemplating starting up a photog business, but struggling with the initial expense of gear, then this tax break may help out...

Basically prior to this change, if you made a purchase over $1k then any claim made through tax was through depreciation - not ideal for cashflow. Now that threshold is $20k - meaning big ticket items like pro level cameras, lenses and computers, even a vehicle are now able to be claimed as a full deduction - meaning you'll be out of pocket for less time.

Please note I'm not an accountant!!! So seek advice before making any major business purchases :)

Jon

[ameerat42]

Yes. So it is being (incessantly) touted all over the media. Any mention of business acumen? So far it's been all
"Go on, have a go!" from the likes of the budgeteers. They have forgotten to add: "Yer mug!"

Hmm! I can see a lot of failed "enterpises" on the horizon.

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PS: And who'll be picking up the tab?

[Redgums]

Biggest concern here is for those that jump and and spend their $19,999.99 on new kit and then, 6 months down the track when the Zsenate blocks that budget measure, are left looking broke and decidedly glum!

[binnie]

I would be more inclined if the budget measured had all passed through the senate. I can see a few businesses being caught out here...

[Grant S]

Goes will be had, successes will be few.:rolleyes:

[Kym]

Goes will be had, successes will be few.:rolleyes:

Which is true regardless of the budget

[Grant S]

Wasn't a comment on the budget, merely on the likelihood of success of any goes that are had.

[arthurking83]

.....

If you are contemplating starting up a photog business, but struggling with the initial expense of gear, then this tax break may help out...

.....


I'm not convinced that this is actually a reality!

Disclaimer: I'm not an accountant, and I actually hate accounting with much enthusiasm!! So take my facts and figures as random ramblings of little actual value.

The way I'm seeing it, this new incentive is appealing more so towards already established businesses, which implies a current cashflow of some kind and hence taxes being paid.
To someone contemplating starting a business(of any sort), not strictly limited to photography(but let keep it to photography based on the website we're all a party too).

For someone starting out in a new venture, again the implication is a startup cashflow of zero, hopefully increasing to a decent level at some point.
it's rare for a business to instantly generate a massive cashflow to the point where this new tax writeoff becomes an advantage.

So fro arguments sake, let say this new startup generates income from zero to approximately 40K in the first year.
If this photographer spends anywhere near 20K for actual hardware such as cameras/lenses/lighting/etc, this immediately reduces their taxable income from this 40K in the fist year to 20K.
All well and good, but at about 40K income, tax will be minimal anyhow(at a rough estimate, maybe a couple of thousand tops, with other expenses included).

At 20K, tax will be zero based on the current tax free threshold. So the actual dollar value advantage is in reality about $2K .. more likely less. The point is that you will have other expenses to balance your taxable income anyhow .. this is a very simplistic situation.

Most businesses will increase their total income at a steady level, so lets assume great marketing skills, which results in an increased income to 50-60K for the next year. or 50% increase. And keeping it simple, the same for the following year, which then peaks at about 100K and stays there. great .. you're on your way to make a killing from your hobby.

In the first year, you have fully depreciated the cost of those goods, and have benefited by about a couple of thousand in tax offsets. The following year you don't really need a new set of camera gear, so your additional expenses won't be so high. You may need to spend a few more K here and there, but not anywhere near the initial 20K outlay you have implemented.

After two years tho this tax break is going to disappear, so the end result will be that many people will have already depreciated their equipment fully(with this new ability to claim) and will be left with nothing to claim depreciation on later in their business life .. when they are making more money .. and hence paying a lot more tax on.
if this business is subsequently making 100K annually, and with a realistic goods claim regime, at that income level you're pushed up into the very high tax threshold.

So, as a start up, you will have used up your entitlements way too early in the business life cycle, and not really benefited much from this new tax break!

This new tax break appears to be geared more towards already established businesses already making money, but probably unwilling to risk high priced purchases just in case thing turn for the worse.
In that situation the tax break make more sense to take advantage of now, fully.

But for a start up business owner, doing so at an early stage with minimal income doesn't make any sense.

Like I said tho, I have very little idea on all the ins and outs of business accounting and tax laws, so my comments are very verry general, more so to explain a probable reality of what could transpire.
people read the 'dashing headline' and think .. of cool, I can spend 19,999K and get it for free .. or something silly like that.

A tax break is only as good as the tax level you are currently situated in .. it's not an offering of cash, or something.

That is, this 20K tax claim ability is not as useful for someone earning $40K, as it would be for someone earning say $80K, because the tax liability at the higher income is much higher(proportionally) than the $40K income.


I'm in the transport industry, so have no idea on what you can legally claim as expenses in the photographer industry.
I've needed another vehicle now for about 3 years or so, the current one is dead(it just doesn't know it yet).
Even with this new tax break, I still can't see the merit in it, making all that expense claim in the one year, at the expense of future tax minimisation(in the form of the current depreciation rules).
I can't afford a $20K vehicle every year for the next two years .. that just silly!

Big ticket announcements like this need to be carefully considered before leaping into it blindly.

If it hasn't been said already .. not only should you seek advice from an reputable accountant, ask pertinent questions as to how this may affect future business tax commitments!

I think Grant hit the nail on the head .. if people see this as some instant way to 'have their go', they may be let down by the reality of it.

[mpb]

In the long run it makes little difference as the items purchased would depreciated in any event, just over a longer period.

The above example assumes that the person does not have another income. If you are already working and start up photography business part time, the incomes would be combined and therefore there would be a bigger benefit from deduction.

If they did start a photography business and had no other income, then if you had $40k, once you pay yourself a wage, other expenses etc it would most like be that the business makes a loss.
This does not mean you loose the benefit of the deduction as you carry the loss forward to future years.

[Grant S]

The budget measure is to stimulate SME spending in the economy. Like any incentive it will work for some and not others. Each business will have to evaluate whether it works in their favour or not. For some business, including some start ups it will work, but for some it won't. Whether it would work for a tog or not would depend on their circumstances.

[Cage]

I used to work in the accounting field many, many years ago, so I'm totally out of touch with current legislation.

However I would like to point out that this is not a handout but a tax deduction, and as has been stated above it would appear to be most beneficial to established businesses with a cash flow.

For a small company this concession amounts to a taxable deduction up to a maximum of $19,999.99, and at the current company tax rate of 30%, this equates to a reduction of $5,999.99 in their tax liability for the year in which the deduction is claimed, assuming that the company is trading profitably.

The saving will vary greatly for sole traders etc depending on their income. For example those earning between $37,001 – $80,000 the tax is $3,572 plus 32.5c for each $1 over $37,000, the tax rate varying between 9.7% and 21.9%.

For those in the $180,001 and over bracket it's $54,547 plus 45c for each $1 over $180,000 at a rate of 30.3% to 44.9%.

So yes, it's a deduction, but only useful if you have a taxable income to deduct it from.

[arthurking83]

.........

So yes, it's a deduction, but only useful if you have a taxable income to deduct it from.

This was my point. The numbers were just simplistic examples .. not real in any way.
Just to highlight that this is more of a benefit for those making lots of money now, not as useful to a startup business as the OP implied

The problem with seeing it as a way to carry forward any losses, is that losses are a major burden on anybody(except for the $180K group of tax avoiders minimisers :p)

Spending $19,999 on photography gear to claim losses isn't good business sense, as the value of that gear in 5 years time will actually depreciate in a real sense. (just as my vehicles do).

Whether it actually stimulates the economy in any meaningful way is questionable. Those that would have spent this sort of money, would have done so anyhow(and simply depreciated it over time).

The term 'sugar hit' used by some commentators is a perfect analogy of this new tax break.


So .. now the question is how do I justify an AF-S NIKKOR 800mm f/5.6E FL ED VR AF-S TELECONVERTER TC800-1.25E ED as an expense in the transport industry. Maybe I could claim it as an important accessory for my dash mounted safety cam :D

[Cage]

Instead of dangling carrots to attract the tradie vote, perhaps Mr Abbott might be better employed to instruct the ATO to get off their arses and chase the hundreds of millions of bucks being siphoned out of our country each year by the multi nationals.

[ameerat42]

What?!!! And lose saving a few bucks by sacking droves of public servants?:eek::eek:

[Mark L]

So yes, it's a deduction, but only useful if you have a taxable income to deduct it from.

That's right.
And I suspect you can't deduct it from your main jobs income if you are are doing photography on the side. Do you have an A.B.N.? I don't have an accountant.:)

[Grant S]

Don't forget it is an up to amount so several small purchases can be made as long as the total cost is less than 20k. Agree though that it'll advantage those with enough income rather than those staying up,.

[Cage]

That's right.
And I suspect you can't deduct it from your main jobs income if you are are doing photography on the side. Do you have an A.B.N.? I don't have an accountant.:)

Money received from your 'hobby' is not normally taxable unless, in the Tax Dept's wisdom, it is providing a substantial part of your income. And you suspect correctly that you can't claim a tax deduction on your hobby expenses unless you are paying tax on the income.

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Don't forget it is an up to amount so several small purchases can be made as long as the total cost is less than 20k. Agree though that it'll advantage those with enough income rather than those staying up,.

Quote from the Financial Review:

"Businesses can buy any machinery or equipment related to their business if each item is valued at less than $20,000. You can claim the full amount from your income to reduce your tax bill. There is no limit on the number of items a business can claim."