Browsing through a small business owner group I am a member of recently, I noticed a question that piqued my attention as an Accountant: Can I claim the Espresso Machine that I have purchased as a deduction against my business income?
The short answer is yes! Yet I need to explain why.
In coming to my answer, there are four things that needed to be considered:
- Are you an employee or a business owner?
- What is the cost of the machine?
- Are you registered for GST?
- Is the machine fully used for business purposes?
Lets consider these questions and their answers.
1) Are you an employee or a business owner?
This is a relatively straightforward question to answer. Should you be an employee, then you cannot claim the machine. Should you be a business owner, then you can claim the machine subject to the remaining questions.
2) What is the cost of the machine?
Until a couple of years ago, you could only fully claim the machine as an expense when the cost of the machine was less than and equal to $1,000.
The ALP then introduced an accelerated depreciation regime in which you could fully claim an asset providing that the GST-exclusive cost is less than and equal to $6,500.
Please note that the current Coalition Government plans to get rid of the special exemption and reduce the limit back to the previous threshold of $1,000. They tried getting the bill through Parliament but it was rejected in the Senate.
The current Government intends to put the bill reducing the threshold back through Parliament when Parliament resumes after the Winter break. Given that it resumes in August, one would presume that the initial end date of 31 December 2013 will be amended to something more recent.
My advice is to rely on the current rules (the threshold of $6,500) until the Australian Taxation Office issue a statement to say otherwise.
Should the purchase cost of this be more than $6,500 (exclusive for GST registered businesses and inclusive for non-GST registered businesses), the excess is included in the General Depreciation Pool. The excess is depreciated at a rate of 15% in the tax year of purchase and then 30% in the second and subsequent years.
This means that So if you are a business owner that has spent less than $6,500 on an espresso machine, you can claim the machine subject to the following questions.
3) Are you registered for GST?
Should you be registered for GST, you cannot claim entire cost of the espresso machine as you will be claiming the GST on the purchase cost when you prepare and lodge the Business Activity Statement for the month/quarter that you prepare and lodge the Statement.
Should you not be registered for GST, then you can claim the entire cost of the machine.
4) Is the machine fully used for business purposes?
I have to be honest here; I don’t drink coffee or tea. But I do make cups of instant coffee for my Mum on a very regular basis.
A couple of things that I have observed for an espresso machine in a home-based business are that:
- We don’t work 24 hours, 7 days per week (contrary to popular opinion); and,
- Should you have a decent coffee machine that you have paid a pretty penny for, you are going to make coffees for all and sundry at all days and times.
In short, if you want to claim that the machine is 100% for business use in a home-based business, you are delusional. And probably a little hyped on caffeine!
Should the business not be based in home-based premises, then it can be claimed on a 100% basis.
You can choose to do, but, should I be your accountant, you would be acting against my advice.
The Australian Taxation Office would surely think that a coffee machine would have a degree of private use attached to it and would frown upon (or even conduct some form of audit activity).
Should there be some form of audit activity, then the taxpayer (ie. YOU) would be held to account as you have signed the Income Tax Return.
It would be more than likely that you would claim that you were acting upon the advice of the Accountant/Tax Agent. And then a complaint would be made to either:
- The Tax Practitioners’ Board, the body that registers Tax Agents;
- The Accounting body that the Accountant/Tax Agent is a member of;
- Any other applicable body.
A complaint to either of these bodies ultimately needs to be reported to the insurance company that undertakes the Accountant’s/Tax Agent’s Professional Indemnity Insurance policy. And this would significantly increase the cost of the annual policy (much like a car accident increase the cost of the Car Insurance Policy per year).
As a result, you should do an estimate of what you believe is a reasonable business use of the coffee machine. And apportion the cost of the machine according.
At the end of the day, it is unrealistic to claim 100% of the cost of the machine, unless the machine is not housed in home-based business premises.
So how should you claim the machine???
- Should you be registered for GST, the cost of the machine needs to be deducted as follows:
(Cost of the machine less the GST on the machine) x business use of the machine x the applicable depreciation rate
- Should you not be registered for GST, the cost of the machine needs to deducted as follows:
Cost of the machine x business use of the machine x the applicable depreciation rate
I will finish this by way of example.
You are a business owner that has purchased a coffee machine for $2,200. You have determined a business portion of 80%.
Should you be registered for GST, then the deduction would be:
($2,200 – $200) x 80% = $1,600.
Should you not be registered for GST, then the deduction would be:
$2,200 x 80% = $1,760
I hope that this makes things a bit clearer. Should you have any questions in relation to this, please do not hesitate to contact me on any of the avenues below.
Until next time,
Mark @ Marked Focus
At Marked Focus, your business matters to us.
Mark Peterson is the Director of Marked Focus and leads a network of financial industry professionals to help you know your numbers and make the best possible financial decisions for your professional and personal life.
To speak with Mark about all things tax, financial planning, superannuation, or to review your insurance, home loans or personal loans, please contact:
(03) 5996 1990