Understanding the tax (and other) benefits of purchasing pre-year end
There is often a big drive to purchase business expenses just before the end of the financial year – so you’ll see the ads start to pop up in late March urging you to buy by the 31st March – but is there actually a benefit to doing that?
Well, yes, there is.
Beany would not advise you to spend money to save tax – as we point out to our clients, there’s no point spending a dollar to save 28 cents (company tax rate). But if you need that new computer or to stock up on a pile of stationery, then here are the reasons why you might consider the timing of the purchase:
For the tax year ending 31 March 2016:
|Buy computer for $2,000 on 31 March||Buy computer for $2,000 on 1 April|
|Claim GST of $260.87 immediately – Timing Advantage||Claim GST of $260.87 at the end of May – no Timing advantage|
|Claim depreciation of $72 in this year – save $20 in tax for current year||No claim this year|
|Buy $490* worth of new office stuff on 31 March||Buy $490 worth of new office stuff on 1 April|
|Claim GST of $63.91 immediately – Timing Advantage||Claim GST of $65.21 at the end of May – no Timing advantage|
|Claim the full expense in current year – save tax of $119.30 on this year’s bill||No claim this year (you will be able to claim in the next financial year)|
*so you fall under the $500 asset rule.
So the benefit is timing. You can get the benefit of your tax savings up to one year earlier by buying one day ahead of the year end so it’s worth thinking about!
So what should do with that money in the meantime? You have access to cash which you don’t have to pay over to the IRD for an extra year. There are savings – and then there are opportunities. Here are some of the things you could spend your ‘saved’ money on:
- Invest in some new software which improves the productivity of your team
- Invest in an upgrade to your hardware so that your team can work faster
- Invest in an HR programme, such as HR Toolkit, which can help avoid any HR issues
- Invest in yourself – go on a leadership or a technical training course
- Invest in a debtor management system to reduce your debtor days
All of these investments can make your business more profitable and all of this from buying a computer one day earlier! Contact firstname.lastname@example.org for information on the tax savings or if you have a specific situation you’d like to discuss.