In May 2015, small businesses got some exciting news. The 2015 federal budget announced changes to instant asset write-offs, allowing small businesses to claim an immediate tax deduction for depreciating assets costing up to $20,000. This is a temporary replacement for the previous write-off threshold, which was just $1,000.
As a result, many business owners scrambled to purchase new technology or equipment to claim as a deduction. But what you may not have realised is that your home equity could be the key to accessing it.
Any small business or sole trader with an Australian Business Number (ABN) is eligible for the tax deduction as long as the business has an annual turnover of less than $2 million. Almost any depreciating asset relating to the business can be claimed. Note that it must be a physical asset purchase. Money spent on, say, advertising, is not eligible – nor are stock or software purchases.
This being the case, assets that could improve your business can be eligible for a write-off. Things like an updated coffee machine for a café, a new car, a more powerful computer or a more cost effective printer are included.
Importantly, items don't have to be brand new. They just have to cost less than $20,000 to benefit from the instant tax break.
In practical terms, there are two catches. The first is that the $20,000 instant tax deduction is scheduled to end on 30 June 2017. After that time businesses will once again be limited to the original $1,000 threshold. So it pays to act fast.
The second pitfall is that not every small business owner or selfemployed worker has a lazy $20,000 to spend on new assets, even though the purchase could substantially benefit their enterprise or generate increased revenues.
There is a highly cost-effective way for small business owners to take advantage of the immediate write-off while it lasts. The answer lies with home equity.
The equity built up in your home or investment property can provide a low-cost source of funds to take advantage of the immediate $20,000 asset write-off.
Home loan interest rates are currently at historic lows. That means drawing down on your home equity might be a smart and relatively tax-effective way for you to enjoy the cash flow benefits of an instant tax write-off while investing in equipment that will strengthen your business.
Speak to your Citibank Mortgage Specialist today to learn more about tapping into home equity, and put this valuable resource to work growing your venture.