There are many ways in which people can start a small business. A common way for many is to start the business from scratch, often on a part-time basis while working full-time, and then switching to operating full time when sufficient income is produced.
Another popular method is for an existing business to be purchased. In some cases this can be buying into a franchise, or for others it is buying a business that has operated for a number of years. Where a business is purchased the tax treatment differs depending on what is included in the purchase price.
Q. I recently bought a chiropractic business from a friend for $140,000. I didn’t take out a loan to pay for it instead I payed for it with my own money. I am wondering if I can use the $140,000 as a tax deduction from my income?
A. The first thing to establish is exactly what was included in the $140,000 purchase price for the chiropractic business. Where the purchase price included equipment, furniture and fittings a value needs to be worked out for these assets. Also if stock of chiropractic goods for sale by the business was included a value needs to be placed on these.
Any assets, including equipment and fittings, that cost less than $1000 can be claimed in full as a tax deduction in the year that you bought the business. Assets costing more than $1000 can be written off under the simplified depreciation rules for pooled assets. This result in you receiving a deduction of 15 per cent on the value of those assets in the year the business was purchased, and then 30 per cent on the written off value for each year after that.
If you purchased items of stock that will be sold the value paid for them will effectively be your opening value for stock. The amount that you can deduct in the first year will be the cost of the goods sold. This is calculated by adding the value of any stock purchased during the year to the amount paid for stock included in the $140,000, then deducting the value of stock on hand at the end of the year.
Once the value for assets and stock is established this is deducted from the purchase price to work out what you paid for goodwill. The amount paid for goodwill cannot be deducted in your first year but is carried forward until you sell the business.
If you receive an amount for goodwill when and if you sell the business, that is greater than the amount included in the $140,000, the profit will be dealt with under the capital gains tax rules. As long as you qualify as a small business entity, are turning over less than $2 million a year, you will qualify for the small business capital gains tax discounts and concessions. This can result in no capital gains tax being paid on any gain you make.
Questions on small business income tax and other issues can be emailed to [email protected]苏州美甲美睫培训学校.au
Max Newham is the founder of www.smsfsurvivalcentre苏州美甲美睫培训学校.au.
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