What Is a Tax Write-Off and How Does it Work?
Without tax, we would live in a very different world. This money, paid by individuals and businesses, is used by the government to fund key services such as education, healthcare and infrastructure. As a corporation, you are responsible for accurately reporting your tax each tax year. The more you earn, the more tax you pay - thats only fair. However, there are ways to lower your taxable income, including making tax write-off claims. Tax write-off definition  A business tax write-off is any business expense that can be deducted from your taxable income when you complete your tax return. You can claim most expenses involved in running your business, including:   Vehicle and travel costs   Home-based working costs   Employee wages and benefits   Education and training   Tools, equipment and supplies   Repairs and maintenance   Meals and entertainment  When making a claim, there are several things to consider. Firstly, you must ensure that the expenses are for your business (not for private use) and relate directly to earning your income. Secondly, you must have detailed records to substantiate the claim. Keeping your books up-to-date and organised will inevitably save you a lot of time and hassle in the long run. Recent changes to the instant tax write-off scheme  The tax systems in place around the world vary from country to country. In Australia, theres something called the instant asset tax write-off. As the term instant suggests, with this form of tax write-off, businesses dont need to wait to make a claim on essential purchases. Instead, they can acquire capital assets and obtain an immediate tax deduction. Of late, some key changes have been made, which you - as a business owner - need to know about. In 2019, the instant asset tax write-off increased to $30,000, and in March 2020, as part of the Federal Budget 2020-21, it was raised to $150,000 to support businesses and help stimulate the economy following the outbreak of COVID-19. This substantial $150,000 cap has recently been extended until 31st December 2020 and is due to revert to $1,000 thereafter. The instant asset tax write-off eligibility threshold has also been expanded to include businesses with an aggregate turnover of up to $500 million, up from $50 million. The $150,000 tax write-off and $500 million turnover threshold is only available for purchases acquired from 12 March 2020 onwards. Making an instant asset tax write-off claim  The instant tax write-off offers a great opportunity and incentive for business owners. You can take full advantage of the scheme by procuring the equipment your business needs now and claiming the full purchase price as a tax deduction. There is no limit to the number of assets that can be claimed, but they must meet the eligibility criteria detailed above, ensuring each individual purchase is under the $150,000 threshold. Its important to discuss the options with your accountant before making a claim. For more detailed information, visit the Australian Taxation Office website. We can help  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.