Monday, 15 Nov 2021
Business owners who are setting foot in the commercial landscape are often taken by surprise when it comes to understanding depreciable business assets. They are often confused about whether they need to depreciate or expense a business asset.
Bookkeeper Melbourne come to the rescue of these entrepreneurs with their expansive knowledge on the topic and provide them with the required information. Assets are needed by the business to keep running its operations and these include equipment, vehicle, real estate, etc.
The business owner needs to identify the depreciable business assets to claim the deductions and tax benefits. Thus, they must rely on a professional bookkeeper to help them with the deductions and understand the right way of owning an asset. Here is some information that can help.
Depreciable business assets are items that have a determined useful lifespan and are used for earning a measurable income. A depreciating asset will decline in value over the years when it is used by the business in Melbourne.
Assets that cannot be categorised as depreciating assets include land, some intangible assets and trading stock. Small businesses with an aggregated turnover below $10 million from July 2016 onwards are eligible to apply simplified depreciation rules.
Otherwise, they have to apply general depreciation rules. The rules provide the entrepreneur with the specified amounts that can be claimed by the business in Melbourne on the basis of the effective life of the asset.
The business can get an instant asset write-off for assets that are priced below the appropriate threshold, which is augmented with the temporary full expensing starting from 6th October 2020 to 30th June 2022.
As per the instant asset write-off, the business in Melbourne can instantly write-off the cost of all the assets that are priced below the threshold. It can claim a deduction for the business part of the cost incurred in the year in which the asset was first used or installed to be used.
Thus, businesses eligible to apply simplified depreciation rules can take advantage of three incentives, including increased asset write-off, temporary full expensing and backing business investment.
While applying these rules, you must remember that the immediate asset write-off can be applied to assets that are priced up to $100 and are used to earn business income. It is also applicable to assets that are priced up to $300 and are used to earn income from other sources rather than the business in Melbourne.
General depreciation defines the capital allowances that can be claimed. It can be computed using two ways – the prime cost method or the diminishing value method. The depreciation of intangible assets can be determined using the prime cost method. Bookkeepers use the depreciation and capital allowances tool to calculate the accurate amount.
Reducing the tax bill is the priority of every bookkeeper. Thus, they utilise deduction claims to save money. Assets can be claimed if their value is expected to decrease, and they have a defined useful lifespan.
These include some specific types of equipment, computer software and hardware, plant and machines that are used by the business in Melbourne, and furniture. The total cost of the asset includes the price of the item and the cost of transporting and installing it. They can be brand-new items or can be bought in resale.
According to this regulation, eligible businesses in Melbourne can claim an immediate deduction for the business part of the cost of an item in the year in which it was first used or installed. It is applicable to both new and second-hand assets and can be claimed for various assets if their individual cost is below the relevant threshold.
Bookkeepers claim the write-off by applying the simplified depreciation rules. The write-off is not applicable to assets that the business in Melbourne acquired and started to use for a taxable purpose from 6th October 2020 to 30th June 2022. In such cases, bookkeepers must immediately deduct the business part of the asset’s cost using temporary full expensing.
Bookkeepers use temporary full expensing to deduct the complete cost of depreciating assets in the year in which they were acquired, used for the first time, or installed for use between 6th October 2020 and 30th June 2022.
The cost incurred while making improvements to the existing depreciating assets during this period can be fully deducted as well. The eligibility requirement for using temporary full expensing includes an aggregated turnover below $5 billion or a corporate tax entity that meets the alternative income test. The Federal Government is planning to extend temporary full expensing up to 30th June 2023.
Entrepreneurs in Melbourne are often stuck between the two, and this is where the bookkeepers come into the picture with their acumen. They help the business owner to decide what will be beneficial for the business.
You need to remember that if you are expensing an asset, you will not be able to claim deductions for it. The key is to identify the bottom line of the business and take a call based on the financial health of the company.
It is vital to look at the long-term benefits of claiming deductions. Your bookkeeper in Melbourne can help you make an informed decision as they are aware of the cash flow and taxable income. So, make sure you can reap the rewards of available deductions to save valuable capital
