At YYC, we believe in making business finances easier to understand.
One key way businesses can reduce tax payable is through capital allowances—a term that might sound complicated, but we are here to simplify it.
What Are Capital Allowances?
Capital allowances are tax breaks that businesses can claim for their equipment and machinery. When your business buys something like a new machine or office furniture, you’re allowed to get some of that money back by reducing your tax bill.
So, instead of just letting your equipment lose value over time, you get a chance to claim tax deductions for that loss in value. This is different from regular depreciation, which doesn’t reduce your taxes.
What Types of Assets Qualify for Capital Allowances?
Not everything you buy for your business qualifies, but a lot of the big-ticket items do. Here’s a simple list of what does:
- Office gear: Computers, printers, fax machines used in your business
- Machines and tools: For factories or manufacturing
- Vehicles for work: Vans, trucks, and lorries used for your business
- Furniture: Desks, chairs, and cabinets used in your business
- Electrical stuff: Air-conditioners, alarm systems, etc. for your business premises
But there are things you cannot claim capital allowances on, like:
- Personal cars (e.g. S-plated private passenger car)
- Items bought solely for donation (not for business use)
- Items bought for resale purposes (e.g. trading stock of the business)
- Renovations for your premises (e.g. factory / office renovations) (like fixing up your office floors, walls, or ceilings)
* The list above is not a complete list. Please seek the advice of your tax agent on what expenses are claimable and what are not under capital allowances.
How Do You Calculate and Claim Capital Allowances?
Here are the good news: you don’t have to claim everything at once. You can claim a portion of the cost of the item over time. So, let’s say you buy a new machine—if it costs $10,000, you can claim part of that amount each year. This helps you save on taxes gradually.
You can claim the capital allowances as soon as you’re legally liable to pay for the item, even if you haven’t actually paid the full amount yet. So, you don’t have to wait until everything is settled.
Special Situations: What If You Give Equipment to Subcontractors?
If your business lends its equipment or machinery to subcontractors, you might still be able to claim capital allowances. But you need to show that this arrangement helps your business and that it’s used for business purposes. Keep all the paperwork, like contracts and proof of how the equipment benefits your business, in case you’re asked.
What About Motor Vehicles?
When it comes to motor vehicles, the rules are a bit different. You can’t claim capital allowances on passenger cars (e.g. S-plated cars), but you can claim on work vehicles like vans, lorries, or buses.
Also, if you buy a Certificate of Entitlement (COE) for a vehicle, that cost can be included in your capital allowance claim, but only if the vehicle is eligible.
Key Takeaways
Capital allowances help businesses save money by lowering their tax bills when they buy things for their operations, like office equipment or machinery. By understanding what you can claim and how to do it, you can keep more money in your business.
At YYC, we believe in proactive care and positive experiences. Let’s contact us today and work together to seize the opportunities that the capital allowance for business has to offer!