What you need to know about $20k asset write-off
OPINION: There appear to be some misconceptions surrounding the $20,000 instant asset write-off concession announced in the May Budget.
Many have appeared in various newspaper articles written by journos who haven't checked facts, some by television talking heads, others by pollies even from the Coalition ranks.
As you would know the concession applies from 7.30 pm on May 12, 2015 to June 30, 2016 and it is not cumulative, it applies to each and every purchase.
Treasurer Joe Hockey warned people not to race out and get themselves an ABN just so they can get a deduction because a small business must make money to be bona fide.
That's simply untrue.
The implicit underlying intention in setting up a business is that it will generate assessable income.
However, it is not written that a business must make an income at any particular juncture in its existence.
You, I and the gatekeeper have an unalienable right to signal an intention to establish a business in this country, something that is done by the acquisition of an ABN.
The only exceptions that come readily to mind are jailed crims and bankrupts.
The business may be in the guise of a sole trader, partnership, trust or company and there is no compunction on the business so registered to immediately generate assessable income.
And it may immediately begin to deduct expenses. Including the instant asset write-off.
And now since the Budget, the cost of professional advice in the process of setting it up.
But what's the point if you are an employee?
And it will be employees looking for a tax break who are likely to be the first cabs off the rank among Hockey's named and shamed.
If you did set up such a business as a sole trader or partner, you'd get absolutely no tax benefit whatsoever from the ploy.
Let's say you spent $19,999 on a second-hand vehicle intended for business use, had employed a lawyer or accountant who'd charged you $1000 to get you started and made absolutely no sales between now and June 30.
Yes, you'd be able to claim the $20,999 in expenses, no worries.
But what will happen is that you will be reporting a commercial loss of $20,999 to the ATO; a loss you cannot apply to your salary and wage income!
That the loss is carried over into the 2016 tax year and onwards until you engage in a truly commercial activity at which point it is offset against profits.
There are four definitions of what constitutes a truly commercial activity but the simplest is that the business must generate an assessable income of $20,000 or more.
Once that happens, the owner may apply any losses against their salary and wage income.
If you have read this carefully and are one of the many coming off the island with the intention of setting up as a tradie, you'll realise that you can legitimately go about getting together the equipment you'll need as it becomes available. While you're still employed!
As for getting your business structure right, there's no real panic: you've got the so-called Doctors' Cases (1978) on your side which will allow you to transfer your business assets and trading losses.
Bob Lamont and Corporate Accountants have moved to Goondoon Street, Gladstone. Bob may be contacted at boblamont firstname.lastname@example.org.