Page 26 - Packaging News Magazine May-June 2020

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BUSINESS | www.packagingnews.com.au | May-June 2020
Instant business booster
Among the raft of new stimulus packages coming in the wake of the Covid-19 crisis is the $150,000 instant asset write-down. PKN looks at what it is, how you get it, and what it means.
THERE has never been a better time to invest in production equipment. The new coronavi- rus-driven instant asset write- off of up to $150,000 means that print business owners effectively receive an instant
27.5 per cent discount on capex. But you will need to be quick, the scheme finishes 30 June this year.
There is a whole host of great pack- aging production equipment that comes in at less than $150,000 cut-off.
For investments in kit over that amount, you can take advantage of a 50 per cent instant depreciation, which is similarly attractive. Both these schemes are effectively bring- ing forward depreciation from future years, but nonetheless represent a significant incentive to buy now.
The $150,000 translates to a $41,250 discount on a piece of kit that you buy for $150,000, providing that your net profit for the year is at least $150,000.
For bigger purchases the benefits are even larger. If, for instance, you bought a $2m production line, you could depreciate 50 per cent of that against this year’s profits. If your profit was $1m, you would be saving yourself an instant $275,000 on the cost of that new line.
The instant asset write-off scheme has been in place for five years. It was initially set at $20,000 a year, then it went to $30,000, now the Covid-19 environment has seen the Morrison government supercharge it to keep business moving.
The instant asset write-off has always been popular with small – and medium-sized business, but now it gives manufacturers real benefit on more than computers
CASE STUDY: TOP PACK BUYS NEW PACKAGING LINE
Top Pack owners Jane and Steve are looking to upgrade their productivity and output options for their packaging business, with a new packing line identified as they key unit to take them forward.
They check out the options and are pleased to find they have several. They settle on a $150,000 top-of-the-range system.
The business has had a reasonable year; they are expecting net profit after their own salaries to come it at $180,000 for the year.
Tax on that net profit would be:
$180,000 × 27.5% = $49,500.
However, the new instant asset write- down means Jane and Steve will be able to take a full $150,000 off that net profit figure as the cost of their new packing line: $180,000 – $150,000 = $30,000.
Tax on net profit of $30,000 is: $30,000 × 27.5% = $8,250.
Therefore, they have reduced their tax bill by 80 per cent or $41,250.
However, Jane and Steve must keep in mind that they will not be able to claim any depreciation for the ensuing tax years as they would normally have done.