Tax time for some small business is an opportunity for future growth

Jul 01, 2020

When Hayley Stephens and Robert Fagan began planning the launch of their e-commerce business in January, a global pandemic was not on their radar.

Ms Stephens and her brother-in-law Mr Fagan joined forces to create Beechville Lane – an online baby and new mum gift hamper business featuring iconic Australian brands.

“As parents of young children ourselves we thought it would be great to specialise in baby shower hampers and new mum gifts that were beautiful and practical,” Ms Stephens said.

“We wanted to feature as many Australian iconic brands as possible.”

Despite COVID-19 putting the brakes on their business growth after the launch of their first hamper in March, Beechville Lane has since gained momentum.

“When the pandemic hit, we figured our plans would need to be put on hold,” Ms Stephens said.

“And then our sales started taking off. We soon realised more people were online shopping and wanting to support Australian businesses.”

Now they have reached the first end of financial year for their business, Ms Stephens said the Federal Government’s amendments to the instant asset write-off would help them grow their business to meet demand.

“Right now, we are a very asset light business but if we keep growing at the current rate there will definitely be a need to avail of the instant asset write off,” she said.

As a one-man operation, underwear entrepreneur Patrick Psotka expected the worst when pandemic restrictions were introduced.

The founder of SPARX Underwear – unique for supportive “kanga pouch” technology – ran an online store from a co-working space in Sydney after humble beginnings two years prior at the popular Bondi markets.

Then, like so many, his home had to be transformed into his primary place of business. “When COVID-19 started, I wasn’t really expecting a lot of sales to come through but actually the opposite happened,” Mr Psotka said.

“Sales have seen a huge surge since men have been stuck at home wearing their underwear all day. In the past three months, I have generated $150k in sales.

“This has caused logistical issues. I currently store the underwear in the hallways and use the living room as an order packing room.

I’ve even had to hire my roommate, who lost her hospitality job, to help me pack orders.

“I had to buy a number of things to set up my home office such as a new computer, table, shelving units for the underwear, camera and a shipping label printer. I spent $10.k in expenses.”

While Mr Psotka was aware he would be eligible to claim working from home related expenses such as business-related portions of rent, internet, utilities and phone bills, he had not heard of the Federal Government’s changes to the instant asset write-off scheme.

“That’s why I am doing my tax with an agent this year as opposed to previous years… it looks like I can instantly write off expenses under a certain threshold rather than amortising it,” he said.

Millions of Australian businesses are set to benefit from the Federal Government’s increase and extension to the instant asset write-off scheme.

The changes announced last month include an extension of the $150,000 instant asset write-off until December 31 for businesses with an aggregated turnover of less than $500 million.

Principal of Mr Taxman Adrian Raftery said those who made one or multiple purchases under the threshold should remember the immediate reduction is for the business portion of the financial outlay.

He said individuals should be aware the scheme was not aimed at them.

“The instant asset write-off is only available to eligible businesses and unfortunately not eligible for individual employees who have been working from home during COVID-19,” Mr Raftery said. “For individuals, any asset over $300 needs to be depreciated over a number of years. And the depreciation is pro-rated which means if you buy a laptop for work for say $1100 on June 29, you will only be able to claim $1 in your 2019/20 tax return.”

The Australian Taxation Office assistant commissioner Karen Foat said the ATO recognises the community has experienced significant challenges this year.

“If you’ve read through the information on our website and still have a question, search our online forum ‘ATO Community’,” she said.

“This forum is available 24 hours a day and we have a great community of expert members who respond to questions.”

 

Instant asset write-off

Here’s a quick rundown on the instant asset write-off, and whether it’s something you can consider for purchases made before EOFY: 

What is an Instant asset write-off? It allows small businesses (with an annual turnover of less than $500 million) to claim immediate deductions for new or second-hand plant and equipment asset purchases. The assets must first be used, or installed for use, in the income year you’re claiming for. 

How does it work? If you buy an asset that comes under the threshold, you can claim the business portion of the asset’s use in your tax return for that financial year. You can claim a deduction for multiple assets as long as the cost of each individual asset is less than the threshold. 

What items can I claim? Some of the items that you could look at purchasing before June 30, 2020 include vehicles, fittings and fixtures, computers and laptops, and security systems. 

When will the instant asset write-off offer expire? This applies until June 30, 2020 for new or second-hand assets first used or installed ready for use in this timeframe. On June 9, 2020, the government announced it will extend the $150,000 instant asset write-off until December 31, 2020. This proposed change is subject to the parliamentary process and is not yet law. 

 

 

Original article published here on 1 July 2020 by The Daily Telegraph. 

comments-rhsLatest Comments

  • "Assuming the app calculates the profit currently then you can use that figure in the Business Income item of your individual tax return - ideally the ATO would like a gross up of the turnover/sales..."

    By: Mr Taxman at Oct 17, 2020 2:10AM

    Post: Foreign currency trading

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    By: Aggi at Oct 06, 2020 11:19AM

    Post: Foreign currency trading

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    By: Mr Taxman at Sep 19, 2020 12:35AM

    Post: Claiming car expenses

  • "You can claim the 68 cents per kilometre method but that effectively covers all running costs of your vehicle. If you wanted to claim a % of running costs you will need to keep a 12 week logbook. "

    By: Mr Taxman at Sep 19, 2020 12:32AM

    Post: Claiming car expenses

  • "Its ok to choose from November 2019 for the start of your logbook Liezl. You can essentially chose any 12 week period during the year so long as its representative of your travel throughout the..."

    By: Mr Taxman at Sep 19, 2020 12:29AM

    Post: Claiming car expenses