The Federal Government passed new laws in 2015 to allow small businesses (with an aggregated turnover of less than $2M) to claim an immediate deduction for the cost of each and every depreciating asset that they purchase costing less than $20,000 up until 30 June 2017.
In this year’s budget, announced on the 3rd of May, the Government raised the threshold to $10M, meaning even more businesses will take advantage of this ‘accelerated depreciation’ incentive, which is designed to help small businesses invest more, grow more and employ more.
96% of all Australian businesses are small businesses, and it’s likely that many of them are already taking advantage of these Government initiatives.
Are Your Business Assets Constantly Changing?
These Tax Advantage measures are designed to incentivise small business owners’ spending, which means that the business assets are likely to grow.
It’s common for business owners to forget to contact their insurance adviser each time they purchase a sizeable asset, which means they are likely to find themselves underinsured.
What is Underinsurance?
According to CGU, brokers estimate between 70-80% of businesses are underinsured, which could result in huge losses for them when trying to rebuild and repair after damage to their business.
Underinsurance occurs when a policy provides inadequate cover to the policyholder. For example, if a business property is valued at $1 million on the insurance policy, then the business expands and the property becomes worth $1.5 million, the business is not covered for the appropriate amount. The policyholder is often unaware of such as discrepancy until the event of a disaster, when they find themselves having to payout the amount that is not covered by the policy.
This often results in a significant financial burden, sometimes so great that the business can’t survive. Policyholders are often underinsured due to improper guidance or planning, but there are steps you can take to avoid underinsuring your assets.
How to Avoid Underinsurance
As a small business owner, your business is your livelihood and should be protected. There are certain steps you can take to ensure you don’t fall into the underinsurance trap:
- Assess Costs Accurately: Ensure your insurance cover represents the true value of the business including buildings, equipment and assets. Your policy should also allow for the cost of rebuilding and recovery, which is known as the replacement value. Don’t try to lower your premium by insuring only a percentage of the replacement value as this can cause financial trouble if disaster strikes.
- Keep Up to Date: If you make any improvements in your business, renovations or acquisitions, it’s important to notify your broker or your insurer to ensure that the sum insured is kept up to date.
- Speak to Your Broker: Accurately valuing your business requires a number of considerations and can be extremely challenging to get right. Your broker specialises in advising businesses of their risk exposure to ensure they are not underinsured.
With new tax advantages, it’s likely that your business will be constantly evolving and growing over the coming years. It’s important that your insurance is reassessed as changes occur, to account for these new developments.
We can help ensure your business is adequately covered and you don’t find yourself in the difficult position of being underinsured when it counts.
This article references information from the ATO website, please click here to view the content in its entirety:
Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.
The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.