Last week we discussed the immediate deductions available for Small Businesses. In addition to those tax benefits, small businesses can also write-off certain business-related costs over a longer 5-year period.
Capital expenditure costs relating to setting up, restructuring and closing down a business can be claimed, as well as costs of defending your business against a takeover. In addition, you can claim the costs for a business that you own, a business that you have previously operated and a business that you intend to operate in the future. Even if the business is registered as a separate entity (for example you are a shareholder of a business operating under a company structure rather than a sole trader), you can still claim these expenses, as long as you are operating the business.
So, what exactly is capital expenditure? It relates to money spent on purchasing or extending the life of fixed assets for the business. Fixed assets are things like land, buildings and equipment. They don’t necessarily need to be large or expensive, but they do need to have an extended productive life. For example, the purchase of a laptop or PC would be a capital expenditure, whereas purchasing paper for a printer or staples for a stapler would be considered consumables, as they are generally not useable more than once in the normal course of business.
While items under $20,000 can be written off immediately by small businesses (until 30 June, 2017), when the limit will likely drop back to the previous cap of $1,000; capital expenditure that can be written off over five years will be deducted on a straight line method (20% of the deductible amount can be claimed in each of the five years. With the higher cap currently in place, smaller capital expenditures (for example the laptop in the previous paragraph) would be deducted immediately rather than over five years.
Basically, the scope of this rule ensures that if you are a small business owner, have been a small business owner, or intend to be a small business owner; you are now more likely to be able to claim deductions on money you have spent to purchase assets in the process of on setting up, operating or closing down your business.
In addition to asset purchases, capital expenditures may also be included. If you would like a more comprehensive list of available deductions, you should contact your accountant to discuss.
By Jennifer Lowe