Small business tax deduction scheme extended for six months

As small business owners begin picking themselves back up amid easing COVID-19 restrictions, the federal government has made a move to encourage them to invest in ‘big ticket’ items. 

Treasurer Josh Frydenberg today announced the government will extend the deadline for instant asset write-offs by six months. About 3.5 million businesses are expected to benefit from the extension, which is forecasted to cost the budget $300 million.  

The instant asset write-off is a scheme that allows businesses to claim immediate tax deductions on purchases including trucks, tractors and equipment. This write-off can be accessed multiple times for each item that falls under the threshold amount. 

As part of its coronavirus support packages launched back in March, the government increased the write-off threshold to $150,000 and the size of businesses eligible to those with annual turnovers of below $500 million.

The expanded scheme was set to apply to assets used or installed by June 30, but that cut-off has now been extended to December 31. 

It’s a final window of opportunity before the write-off reverts to a reduced $1,000 threshold for small businesses with turnovers of under $10 million. This change will now apply from January 1, 2021.

The extension comes after Australian Bureau of Statistics figures revealed Aussie businesses have pushed the brakes on investment. In the March quarter, investments in the major sectors of building and structure as well as equipment, plant and machinery shrank by 1.1% and 2.3% respectively. 

How the extension will help small businesses

Frydenberg said the government’s latest move aims to drive up business investment and help enterprises kickstart their operations again as the economy awakens from its coronavirus-induced hibernation. 

“When the restrictions are eased and people are back at work, our cafes and restaurants will be busy,” he said. 

“Our hotels will have occupants again and our businesses will be able to export and import again, and they need the equipment and they need the machinery.

“We want businesses to get back to doing what they do best - growing, innovating and hiring people across the economy.” 

The extended write-off means businesses can quickly recover cashflow tied up in any expensive asset purchases (of up to $150,000) that they make before the start of next year, whether it’s a coffee machine for their cafe or an industrial oven for their restaurant. 

“[The extension is] designed to support businesses sticking with investment they had planned, and encourage them to bring investment forward to support economic growth over the near term,” Frydenberg said in a statement with small business minister Michaelia Cash.

Tips to boost your cashflow 

Besides taking advantage of the instant tax write-off, there are a few other ways to free up capital for your business: 

• Cut back on spending: Chances are fixed expenses like cleaning or photocopier support may no longer be necessary during COVID-19, so it’s a good time to review your costs to see which ones you can stop, delay or negotiate down for the time being.

• Expand your payment range: The secret to staying afloat as a business is to help your customers stay afloat. Instead of sticking to ‘cash only’, this may mean offering them other ways to pay, whether that’s credit cards or digital wallets.

• Embrace creativity: From dance studios moving their classes online to cafes delivering coffees to people’s front doors, businesses have used innovation to tackle the challenges brought on by coronavirus shutdowns. Now, with restrictions lifting, making up for lost income may be a matter of taking a step back once again and re-evaluating how you can transition back into ‘business as usual’.

• Consider a business loan: This is an easy way to get your hands on extra finance - especially if you apply for an unsecured business loan of up to $250,000 with a lender participating in the government’s SME Loan Guarantee Scheme. Under this scheme, the government will guarantee you half of your loan. Just bear in mind different types of loans will suit different business needs. While a line of credit (drawdown) is good for companies with uneven cashflow, a term loan (lump sum) makes more sense if you already know how much you need upfront.

For more information, check out our article on how to boost business cashflow during COVID-19, or scroll down below to compare your business loan options today.