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Building the retailer of the future: tax essentials

The retail environment is changing, but if you think you’ve got the key to the next retail revolution – whether that’s a new concept store or a shift out of bricks and mortar to a cutting edge online platform, you’re going to need deep pockets because innovation costs money.

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The good news is that the real cost of building the future of retail is less than you think because the taxman will help you bear the cost.

In essence, every dollar you spend in boosting your business should be deductible from your profits in some way. Some expenses – like marketing and advertising – are deductible straight away. Other expenses – where you purchase capital items like shop fit-out equipment, IT equipment or online retail facilities – may well be capital in nature and need to be depreciated.

Take advantage of the instant asset write off for small business

If you’re a small business – meaning that the aggregate turnover of your business is less than $10 million – one of the best tax breaks for small business is the instant asset write-off. This allows you to immediately write off the cost of qualifying capital equipment against current year profits, and has recently been made more generous by the government. The dollar limit for qualifying capital assets has gone up to $25,000 (it was previously $20,000) with effect from 29 January 2019, meaning that any item costing up to that limit can be written off straight away. In addition, the tax break has been extended through until 30 June 2020, a year later than originally planned, so there’s still plenty of time to take advantage. If you’re planning to develop a new store or refresh an existing one, this is a great way for your business to tax effectively fund the fit-out and, at the same time, reduce your taxable profits.

Amongst the items you could look at claiming are the following:

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  • Cash registers and other POS devices
  • Delivery vans
  • Store fittings and fixtures
  • Computers, laptops and tablets
  • In store security systems
  • Accounting software

Building an online presence

If you prefer clicks rather than bricks, the cost of building your new online store is also tax deductible, either straight away or over time.

Hardware (such as a computer server) would likely be considered “plant and equipment” and would be depreciated over its effective life for such assets, generally four years. Similarly, the software that underpins your website can also be depreciated. This typically includes:

  • interactive functions
  • e-commerce tools
  • membership or “sign-in” functions

Costs dedicated to maintaining the website, and expenses associated with uploading content, for example price lists, stock lists, text or pictures, are generally treated as operating costs incurred in the ordinary course of business. These types of costs are usually deductible in the same year that they are incurred. The hosting of a website would also typically be treated this way as this is part of the regular ongoing cost of operating the business.

Remember, the $25,000 instant asset write-off is also available if you’re a small business incurring capital costs developing and building a website.

Setting up a new retail business

If you’re not yet in the retail trade or you are in the trade and you’re looking at proposals to diversify your current business, you could also potentially be looking at an immediate tax deduction for the costs of professional advice about how to structure your business, the costs of due diligence if you’re purchasing an existing business and the costs of feasibility studies and market research if you’re setting up a whole new business. Again, you need to be a small business (turnover less than $10 million) to qualify for this deduction, or alternatively not in business at all (if you’re looking to start a business in future from scratch and want to claim costs associated with that).

 

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