In the Australian Taxation Office’s latest podcast episode (yes, everyone has a podcast now) they explain what, exactly, temporary full expensing and loss carry back are (the two are meant to be used together) and how they will affect your business come the EOFY. So, what are the JobMaker tax measures? Along with the hiring credit, instant asset write-off and a plan to increase the small business entity turnover they comprise temporary measures that are meant to offer some relief to businesses come tax time this EOFY. Small Business WA revealed that “Research by American Express has revealed almost half of all small business owners are unaware of this initiative and that it could be of great help.” That’s a lot of small businesses not taking advantage of measures that could make a huge difference after such a hard year, so Professional Beauty is here to talk about the topic.
And there’s more good news on the tax front. HABA reported today that federal treasurer Josh Frydenberg “said the government will deliver more than $16 billion in tax cuts to small and medium businesses by 2023 – 24 with around $1.5 billion flowing in 2019 ‑ 20. This, he said, ‘includes reducing the tax rate for small and medium companies, from 30 per cent in 2014 ‑ 15 to 25 per cent from 1 July 2021’.”
Tax stuff can be pretty dense so we’ll try to break down how it can benefit your beauty businesses to take advantage of these initiatives this year (2020-2021) and next (2021-2022).
Temporary full expensing
The ATO site says “Eligible businesses with an aggregated turnover of less than $5 billion can deduct the business portion of the cost of eligible new depreciating assets that are first held and first used or installed ready for use for a taxable purpose, between 7.30pm (AEDT) on 6 October 2020 until 30 June 2022.” Small to medium-sized businesses can also apply temporary full expensing to “the business portion of eligible second-hand depreciating assets.” That means most beauty businesses ($5 billion is A LOT) can fully deduct the cost of new assets instead of a portion of the cost over time/on taxes every year for the useful life of the asset. This latter thing is known as depreciation, according to Investopedia, “the expensing of a fixed asset over its useful life. (Whereas “amortization is the practice of spreading an intangible asset’s cost over that asset’s useful life,” says the site.)
Instant asset write-off
If you (or your business accountant doesn’t) don’t take advantage of temporary full expensing (above), you should use the instant asset write-off mechanism for any assets you first used or installed ready for use by 30 June 2021. You can use temporary full expensing or instant asset write-offs but you can’t do both.
Instant asset write-off is a tax measure under which “eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use,” says the ATO. The measure applies to assets bought between 12 March 2020 and 31 December 2020 and installed for use before 13 June 2021. Eligible businesses with an aggregated turnover of less than $500 million (again, most beauty businesses and a marked increase from the former cap of $50 million) can use the instant asset write-off for:
- each asset purchased by 31 December 2020, and
- costing less than the $150,000 threshold (an increase of $120,000 up from $30,000)
What are some example of assets for beauty businesses? New beauty tech (e.g. an EmSculpt NEO unit), as those carry big capital costs (i.e. they cost a lot of money to buy). Or the installation of new pedicure chairs in a nail salon, new treatment tables… The measure applies on a per asset basis, so you can buy multiple assets so long as each is under the $150,000 threashold.
Instant asset write-off can still be taken advantage of if you’re a small business and you purchased business assets from 1 January 2021 but it will “only be available for small businesses with a turnover of less than $10 million and the threshold will be $1,000,” according to the ATO.
Loss carry back
According to the ATO, loss carry back is “a tax incentive and part of the government’s JobMaker Plan. Loss carry back is a refundable tax offset for eligible corporate entities (companies, corporate limited partnerships and public trading trusts.” In layman’s terms, the incentive allows businesses with a net operating loss in the current year to apply those losses against a previous year to receive a refund on the tax paid in that prior year. How does this work? The tax liability in the year to which the net operating loss was carried back will be reduced due to the loss applied to it, so the tax paid in that year would necessarily be too high (as it was paid before the future loss was retroactively calculated in) and thus refunded. Management Consulting firm Deloitte has illustrated a PDF with how to calculate the provision, which is immensely helpful if you’re more of a visual learner.
If you have an accountant, make sure they are aware of these JobMaker tax measures (they should be already if they know what they’re doing) now, and are absolutely taking advantage of them if you are eligible.
If you don’t have an accountant and you complete your own taxes, you should read as much as you can about these tax claiming measures to understand if they apply to you and how you can use them to your advantage.
2020 and early 2021 might not have been ideal times to start a new business or grow and existing one, but there are some tangible financial benefits to the temporary tax-claiming measures for any beauty business savvy enough to take advantage of them.
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