The final date for instant asset write-off is 30 June 2023 and Belinda Crowley, a tax principal in RSM Australia’s Brisbane practice, believes many SMEs could be caught unaware of the phase-out of the scheme and may not realise the significant red tape risk as more onerous rules come back into play.
Ms Crowley said from 1 July this year, for small-business entities (those with aggregated turnover below $10 million), any asset they purchase worth more than $1,000 will have to be depreciated over the effective life of the asset.
For larger businesses, the threshold is $100 and any asset purchase above that must be depreciated.
“This is a significant burden of time and money, especially for small businesses. Even if their accountants handle [it] for them, it’s still an additional expense to bear,” Ms Crowley said.
The instant asset write-off (IAW) initiative designed for small businesses has been part of the landscape for most SMEs since 2015.
During the pandemic, the federal government introduced temporary full expensing that applied to businesses of all sizes, as opposed to the size limits for the instant asset write-off.
However, both these initiatives are coming to an end by July.
“Historically, business tax depreciation was cumbersome for smaller enterprises to administer,” Ms Crowley said.
“As a compliance initiative IAW has saved business owners significant dollars because depreciation became less complex to administer. Many business owners hoped these initiatives would be rolled forward but the new federal government has different priorities.”
One of the biggest issues was the massive difference between accounting for the occasional big-ticket item of a $30,000 asset and having to do so for any asset over $1,000 (or $100 for larger businesses).
Ms Crowley advised small businesses not to write off assets this financial year and instead save their depreciation for when it’s needed.
“It all depends on business results. If you’re going through a tough period right now and don’t need the deduction to reduce your tax bill, think really hard and seek professional advice on whether you should be taking it now,” she said.
“It’s also important to note that supply chain issues mean even if you wanted to access the instant asset write-off, you must ensure the asset is installed and ready for use by 30 June 2023 or you can’t claim it.
“This is certainly an issue in an environment in which some cars, and large farm machinery, are taking six months to arrive. You need to be confident the asset will definitely be on farm or on-site and in use by 30 June.”
She also said that sectors relying on physical assets, such as the agricultural, mining, and construction industries, will be most heavily impacted.
Although a skills and training boost and technology investment boost have been announced, Mr Crowley said these are unlikely to have the cut-through or generic application of the instant asset write-off.
“The federal budget highlighted environment, digitisation and training as priorities, so SMEs should be aware of the new 20 per cent uplift deduction and take advantage of it if they can,” she said.
“This means businesses spending, for example, $100 to train an employee, or on digitisation, will get a $120 deduction, with this incentive backdated to 29 March 2022.
“The problem is this is very specific and only for training conducted with registered training organisations, so it is a much harder benefit for small to medium businesses to access. It’s also only available to businesses with aggregated turnover below $50 million, plus the technology boost only lasts until 30 June 2023, and the training boost until 30 June 2024.
“It will also be inconsistently beneficial across sectors — for example, a lot of learning in the ag sector is on the job rather than sending employees on courses for a formal accredited structure.”
Ms Crowley said the impact remains to be seen because these new depreciation initiatives will be harder for businesses, especially asset-intensive businesses, to access.
However, IT and similar sectors could benefit from these new deduction initiatives.
