As Australia enters an economic recovery phase, our business sector could see a lift in capital purchases. Research reveals that, before the outbreak of Covid, two in three businesses had planned on investing in capital in FY21.
The figure comes from an independent survey of 261 Australian businesses―88 per cent of which are SMEs―commissioned by Money.com.au, an online financial information platform for businesses and consumers.
The survey reveals that 66 per cent of businesses were planning to make capital purchases in FY21. One quarter (26 per cent) were planning to invest in assets of up to $50,000, 40 per cent in assets of up to $100,000 and three-quarters (74 per cent) in assets of up to $150,000―the new and temporary purchase threshold of the government’s instant asset write-off scheme.
When asked which asset categories they would invest in, 48 per cent of businesses who planned on investing in FY21 said vehicles, 30 per cent said equipment and machinery, and 25 per cent chose furniture.
“That a significant percentage of businesses were planning to invest in capital from July indicates that many businesses were doing well and have been on a growth trajectory,” licensed financial advisor and Money.com.au spokesperson Helen Baker, says.
“When businesses purchase new equipment, it is often linked to efficiency and growth, so many will find this investment pays for itself, despite the upfront costs.”
The instant asset write-off threshold―a cash flow benefit which allows businesses to immediately deduct purchases of eligible assets―was increased from $30,000 to $150,000 in March as part of a coronavirus support measure for businesses.
As part of this, it opened up access to businesses with an aggregated turnover of less than $500 million, previously $50 million. However, the new thresholds only apply until 30 June. From 1 July, the criteria will change again to be applicable to purchases of up to $1,000 and available only to small businesses with a turnover of less than $10 million.
“The government should be providing as much support as it can to help businesses grow during this time. The new instant tax write-off threshold provides a great opportunity for businesses doing well to instantly reduce the amount of tax they have to pay, instead of waiting to claim on depreciation, which could take a long time to get back.
“If these purchases are bought from Australian made products or businesses, this will also help those businesses with sales, cash flow, employment opportunities. The new thresholds are for three months only. It would be great if the government extended the threshold to December 2020 as our economy focuses on recovering.
“This will allow more time for businesses to assess exactly where the business is at and where it is heading now that lockdown is lifting. Regardless, I expect to see strong take-up of businesses making the most of this limited-time advantage they have to write purchases off on tax,” Baker says.
