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$20K instant asset write-off – be careful!

The 2016 Budget has seen the Government extend the $20K Instant Asset Write-off ($20K IAW) to businesses with a $10 million or less gross turnover from 1st July 2016 (because apparently having a $10M turnover makes you a small business now – what the?). Well that’s nice and all, but in my opinion, this initiative is only beneficial to you and your business if the following attributes apply:

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  • Your business is making a profit. A sizeable tax deduction brought about by the $20K IAW won’t help you if your business is currently making a loss. Put your credit cards away because if this is you, making large purchases will only increase the size of your losses – not really a smart move.
  • Your business actually needs the assets. Don’t rush out and buy just because you think it will make a difference to your tax bill at year-end. Only buy if you think those assets will help you increase your profits or because you really do need to replace old or damaged assets which have come to the end of their lives.
  • Your business cash-flow supports large purchases. In other words, if your business cannot afford it, don’t buy it. Pretty simple really. Yes, it is possible to take the pressure of your cash-flow problems by purchasing items via various loans, leases etc. but at the end of the day, those loans still need to be serviced and if you already have poor cash-flow, this strategy may just add to your financial woes. Here’s a better idea: rather than increasing your liabilities, you should look to paying out any current or older liabilities first. This is a more sensible plan in my opinion – far better than buying items just for the sake of being able to say that you took advantage of the $20K IAW while it was around. Again, not a smart choice.

Think seriously people about this initiative before running off to retail heaven and splurging. First ask yourself if:

  1. your business really needs the asset and
  2. if your business can actually afford it.

This is really nothing more than common sense. Simply live within your means and life will be pretty sweet (and more importantly, your business cash-flow will be sweet too!).