Some practices keen on expanding their operations are sometimes held back by the potential consequences on their cash flow. The addition of much-needed equipment must be carefully weighed and considered, taking into account how the purchase of these can affect the practice's liquidity over the short and long term.
In order to take advantage of this measure introduced in the 2015 Federal Budget, small businesses will need to pool assets which cost $20,000 or more and then depreciate these at a rate of 15 percent in the first year and 30 percent in the following year.
The scheme will be available for small businesses until June 30, 2017.
What are depreciating assets that are included under this scheme?
The term depreciating asset refers to assets that have a limited effective life and are expected to decline in value over a given time frame. These assets may include plant and equipment, office furniture and fittings, work vehicles, tools and machinery. Not included are land, some types of computer software, intangible assets, and items of trading stock.
Practices that are keen on taking advantage of this opportunity are encouraged to consult with their legal and accounting teams. Businesses and practices that can immensely benefit from this opportunity are those who have been planning on making purchases for quite some time.
Small businesses should be aware that this opportunity is a tax deduction and not a grant or allowance. And if the business is not making a good profit, it cannot take full advantage of the tax deduction.
Experts also warn that for practices that have not yet been registered for GST, the deduction includes the GST and can push practices over the $20,000 threshold. Finally, if the asset purchased will be partly for personal use, the asset can be added to the GST component which can also push the practice over the said threshold.
Frequently Asked Questions
1. What is the small business asset deduction opportunity in Australia?
The small business asset deduction opportunity, introduced in the 2015 Federal Budget, allows small businesses to immediately write off assets costing less than $20,000. For assets costing $20,000 or more, businesses can pool these assets and depreciate them at a rate of 15 percent in the first year and 30 percent in subsequent years. This scheme was available until June 30, 2017, though similar schemes have been extended since.
2. What types of assets qualify as depreciating assets under this scheme?
Depreciating assets include items that have a limited effective life and decline in value over time, such as plant and equipment, office furniture and fittings, work vehicles, tools, and machinery. Assets that are not included under this scheme are land, some types of computer software, intangible assets, and items of trading stock.
3. Is the small business asset deduction a grant or tax deduction?
The small business asset deduction is a tax deduction, not a grant or allowance. This means businesses must be making sufficient profit to take full advantage of the deduction. If a business isn't generating good profit, it cannot fully benefit from the tax deduction opportunity, as there needs to be taxable income to offset.
4. How does GST affect the $20,000 threshold for asset deductions?
For practices not yet registered for GST, the deduction includes the GST component, which can push the asset value over the $20,000 threshold. Additionally, if an asset purchased will be partly for personal use, the asset value can be added to the GST component, which may also push the practice over the threshold, affecting eligibility for immediate write-off.
5. Which medical practices benefit most from the asset deduction scheme?
Medical practices that can benefit most from this opportunity are those who have been planning equipment purchases for some time and have sufficient profitability to utilise the tax deduction. Practices looking to expand operations with new equipment, upgrade existing assets, or invest in plant and machinery while managing cash flow can particularly benefit from this scheme.
6. How should medical practices prepare to use this tax deduction?
Medical practices keen on taking advantage of this opportunity are encouraged to consult with their legal and accounting teams before making purchases. Professional advice ensures proper understanding of eligibility requirements, timing considerations, GST implications, and how the deduction will affect the practice's cash flow and tax position.
7. What is the depreciation rate for assets over $20,000?
For assets costing $20,000 or more, small businesses must pool these assets and depreciate them at a rate of 15 percent in the first year and 30 percent in each following year. This pooling method allows businesses to still gain tax benefits from larger equipment purchases, though not as immediately as assets under the $20,000 threshold.
8. How does the asset deduction scheme help with medical practice cash flow?
The asset deduction scheme helps medical practices manage cash flow when expanding operations by providing immediate or accelerated tax deductions for equipment purchases. This reduces the tax burden in the year of purchase, helping offset the upfront costs of acquiring much-needed equipment. However, practices must carefully weigh purchases against their liquidity needs over both short and long term.
9. What is the most common medical equipment for a new practice?
Starting a new medical practice requires the right equipment and furniture to ensure smooth operations and patient care. Below are some of the essential medical items typically required:
Medical Equipment:
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Stethoscopes: Used for listening to heartbeats, lung sounds, and other bodily functions.
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Ophthalmoscopes: Essential for examining the eyes and diagnosing conditions like cataracts or glaucoma.
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Otoscopes: Used to look inside the ear and diagnose conditions such as infections or earwax buildup.
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Diagnostic Sets: Includes tools for examining eyes, ears, throat, and other areas of the body.
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Defibrillators: Life-saving devices used to restore a normal heart rhythm during emergencies.
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Thermometers: Vital for measuring patient body temperature to check for fever or other health concerns.
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Automatic Blood Pressure Monitors: Provides quick and accurate blood pressure readings without the need for manual cuff inflation.
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Pulse Oximeters: Measures oxygen saturation levels in the blood, an important tool for respiratory health.
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Scales: For accurately weighing patients as part of routine check-ups.
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Sphygmomanometers: Used for manual blood pressure measurement.
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Spirometers: Essential for assessing lung function, particularly in patients with asthma or other respiratory conditions.
Medical Furniture:
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Couches, Beds, and Tables: Comfortable and functional furniture for patient examination and treatment.
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Lighting: Proper lighting is essential for accurate diagnoses and a comfortable environment for patients.
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Trolleys and Carts: For storing and transporting medical supplies, medications, and equipment efficiently.
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Vaccine Fridges: Designed to store vaccines at the appropriate temperatures to maintain their effectiveness.
Having the right mix of medical equipment and furniture ensures a safe, efficient, and professional environment for your new practice.
Regards
AMA Medical Products
PS: Keep an out eye out for e-mail two of this series. We will share the thoughts gleaned from our interview with a specialist Accountant, who provides services to business owners within the medical profession
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Disclaimer AMA Medical Products has made every attempt to ensure the accuracy and reliability of the information provided. The material found within this blog article made available by AMA Medical Products is for educational purposes only and to give general information and understanding of the topic. The content should not be used as competent or substitute accounting, taxation or business advice that would be acquired from a licensed professional service provider.