A SIMPLE WAY TO SLASH YOUR TAX BILL
Transport operators need to be doing everything they can to turn a profit today. As margins in the field continue to shrink, earning an honest dollar has gotten particularly difficult for smaller operators.
Thankfully, the government has used the last two federal budgets to extend olive branches to small businesses. In 2015, Canberra’s top bean counters decided small business would be the “engine room” of the national economy.
Then-Treasurer, Joe Hockey, announced a $5.5 billion jobs and small business package he called “the biggest small business package in Australia’s history”. One year on and Hockey’s successor Scott Morrison doubled down on the sweeteners for the little guys.
While some of these policies received plenty of media attention – and collective groans as we tried to stomach more politicians using the phrase ‘jobs and growth’ – other measures went unnoticed. It is taxation legislation after all.
The small business depreciation pooling provisions included in the 2015 Budget was one such ‘glossed-over’ policy change.
Yet, in spite of its quiet arrival, the provisions are having a massive impact on smaller operators in the transport and logistics industries.
But what is this pool, and why should transport and freight operators consider taking a dip?
How does depreciation impact your balance sheet?
A depreciating asset is a piece of equipment used to generate income that’s expected to decline in value over its lifespan.
Take one of your delivery vehicles as an example.
Driving out of the dealership, the truck is of course more valuable to the business than it will be in five years’ time. That said, the right vehicle could still be serving your business as well as it always did, but its resale value will be lower.
As that asset’s value declines, businesses can claim a deduction for the depreciation in value of the equipment, which reduces the income a business has to pay tax on.
This impacts on the balance sheets of transport operators more than other businesses because a fleet of vehicles, all being affected by depreciation, is often the greatest asset a transport company owns.
The current depreciation provisions mean a transport operator can purchase vehicles and, with a couple of strokes of a book-keeper’s pen, be rewarded with a lower tax bill.
It’s not just vehicles either, businesses can claim the costs of most depreciating assets, with a few exclusions.
What’s a small business depreciation pool?
In an effort to make it easier on small business accountants, depreciation pools group the cost of all larger assets together and apply standardised depreciation rates to the balance.
‘Smoking’ Joe Hockey introduced provisions that allowed items in these pools to be depreciated faster than before in his 2015 Budget. Assets in this pool are deducted at a rate of 15 per cent in the year they’re allocated, and 30 per cent in subsequent income years.
What does it all mean?
Depreciation pools mean that right now is a brilliant time for transport operators to look at trading in older vehicles or adding new trucks to your fleet.
The accelerated depreciation provisions affecting general small business pools mean the more you spend on vehicles and other equipment, the more you reduce your taxable income – effectively meaning equipment will cost your business less.
It’s the government’s way of helping your small business, because it wants the engine room of Australia’s economy firing on all cylinders.
Thanks to ScoMo’s recent decision that the asset deduction threshold will remain at $20,000 until the end of the 2017-18 financial year, small businesses will enjoy even more benefits from these asset pooling provisions.
For businesses considering adding vehicles to their fleet, the flow-on benefits will linger past the stress of tax time.
Updating your fleet could save you plenty at the petrol pump too, as modern vehicles are made to run more efficiently and are safer to operate – not to mention the headaches caused by having an unreliable vehicle out on the road.
These factors mean business owners should be talking to their accountants about which assets would be most valuable to add to their depreciation pool.
It’s not often that the tax man looks out for the little guys, so businesses should reap the benefits of these provisions before they’re scrapped for legislation favouring the top-end of town.
For more information about how the government has simplified depreciation for small businesses, visit the Australian Taxation Office’s website.