Depreciation vs full claim: What are the benefits to you?
This tax year business will have two options for tax relief on asset purchases, but which is better?
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
The Australian Taxation Office (ATO) defines depreciation as, ‘an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Depreciating assets include such items as computers, electric tools, furniture and motor vehicles.’
Now, in plain English that means that depreciation is how much the ATO says that assets decrease in value as they age. Each tax year it is possible for taxpayers to claim depreciation on assets that they own, by claiming the loss of value that the aging of your assets has cost you.
What’s a full claim?
This year, however, the government also announced a tax claim that would allow small businesses to write off the entire cost of any asset purchase less than $20,000. This is designed to increase spending and to allow small business the opportunity to grow.
Which is better?
Business have always been able to claim some tax relief on capital assets through depreciation, but now the $20,000 write off will give them another option. So which is best? First of all, remember that finder.com.au is not here to give financial or tax advice, our role here is to help you understand your options, the final decision must be made by you and any registered financial assistance that you opt for.
There are really two ways to reach the answer to the question which is better. Firstly, you should remember that in order to reclaim the tax of an asset purchase up to $20,000, you first have to purchase assets worth that much. That’s a significant purchase, especially for a small business, and should only be taken with significant thought and a thorough cost/benefit analysis.
If at the end of this you decide that your business can afford the purchase and it will benefit the growth of the business then you will probably find that the full claim is better for you, as cash flow is always a high priority and claiming in this way means the benefits will be felt this year rather than over the course of the next several years as would be the case with claiming depreciation. However, this will change depending on the circumstance of your business. If you’re unsure, seek professional financial help.
If you’re thinking buying a capital asset to take advantage of the $20,000 tax claim, then be sure that you’re doing it for the right reasons. Remember, this isn’t free money, and whatever you buy should add meaningful value to your business. This tax year business will have two options for tax relief on asset purchases, but which is better?
DISCLAIMER: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information applicability to their own particular circumstances.
More guides on Finder
Budget 2020: How your business can benefit
The Federal Budget includes a number of new schemes that could help your business including tax offsets, asset write-offs and wage subsidies for new hires.
5 tax traps to avoid when working from home
Want to claim home office expenses in 2020? Finance expert Natasha Janssens takes us through 5 key issues to keep in mind when you're submitting your next tax return.
Beginner’s guide to cryptocurrency tax in Australia
A beginner’s guide to your cryptocurrency tax obligations and how the ATO is targeting digital currency holdings in 2019.
Commbank Benefits finder: How much money could you claim?
CBA has updated its Benefits finder tool to include benefits, rebates and allowances you could be eligible for if you've lost income due to coronavirus or you're struggling financially.
Coronavirus: How to manage your credit card
Learn about coronavirus financial support options, complimentary insurance and other credit card details you may be wondering about.
Coronavirus: What to do if you can’t afford your car repayments
Can't afford your car loan repayments because of the COVID-19 pandemic? Here's what to do.
Business loans for SMEs affected by the coronavirus outbreak
Find out what business loan options are available during the coronavirus outbreak, and what the government is doing to help.
Coronavirus (COVID-19) getting financial help in Australia
Help with financial relief, insurance, Government stimulus packages, and more on where to get support during the ongoing COVID-19 crisis.
Lost your job due to the coronavirus? Here’s where to get help
Advice on where you can get financial support if you've lost your job due to the coronavirus.
5 ways you can improve your personal finances in 5 minutes
SPONSORED: Got 5 minutes to spare? Here's how you can improve your financial situation quickly and easily.
Ask an Expert