2024 update:
The main small business focus in the 2024-25 federal budget is extending the $20,000 instant asset write-off for another year.
Previously set to expire in June 2024, the extension allows you to claim the instant asset write-off on qualifying purchases made between July 1, 2023 and June 30, 2025. So, if you’ve bought equipment, furniture, or technology under $20,000 within this timeframe, you can claim it on your tax return.
How will this updated write-off work? This article has every detail you may need 👇
Budget 2024: Everything you need to know about the extended instant asset write-off
As the cut-off date for the instant asset write-off program approaches on June 30, 2023, many small to medium-sized enterprises (SMEs) are feeling the pressure to take advantage of the program before it ends.
The program has been a popular initiative for SMEs since its introduction in 2015, allowing them to immediately write off the cost of assets valued up to a certain amount instead of depreciating them over time.
However, with the program ending soon, businesses may not be aware of the long-term implications and the extra red tape that comes with it. Belinda Crowley, a tax principal at professional services firm RSM Australia, warns that businesses need to be prepared for the changes and seek professional advice before making any decisions.
From July 1, 2023, small business entities with an aggregated turnover below $10 million will have to depreciate any assets they purchase worth more than $1,000 over the effective life of the asset. For larger businesses, the threshold is $100, and any asset purchase above that must be depreciated.
Crowley advises that if businesses don’t need to write off assets this financial year, they should save their depreciation for when it’s needed. It’s also important to note that supply chain issues may affect businesses’ ability to access the instant asset write-off. Businesses must ensure that the asset is installed and ready for use by June 30, 2023, to claim the write-off.
The popular scheme, which has enabled businesses to claim immediate tax deductions for qualifying asset purchases, is coming to an end, leaving many SMEs scrambling to beat the deadline.
However, Crowley cautions that the end of the instant asset write-off program is just the beginning of a potentially more significant problem for SMEs: the reintroduction of more onerous depreciation rules. She explains that many SMEs may not realize the significant red tape risk associated with the more complicated depreciation rules, which could create added complexity for business owners.
Crowley notes that the phase-out of the instant asset write-off program and the reintroduction of the old depreciation rules could lead to short-term and long-term challenges for SMEs. In the short-term, businesses will need to act quickly to take advantage of the remaining time left to make purchases eligible for the instant asset write-off. In the long-term, they will face the extra burden of more complex and time-consuming depreciation rules, potentially leading to increased costs and administrative burden.
Additionally, she recommends that business owners start preparing for the transition to the new depreciation rules to avoid being caught off-guard by the added complexity and red tape.
“This is a significant burden of time and money, especially for small businesses. Even if their accountants handle if for them, it’s still an additional expense to bear,” Ms Crowley said.
For larger businesses, the threshold for asset purchases requiring depreciation is lower, at $100. Any asset purchased above this threshold must be depreciated over its effective life.
The instant asset write-off (IAW) initiative has been a staple of the Australian small business landscape since 2015. This program has allowed businesses to immediately deduct the cost of asset purchases under a certain threshold, making it easier for SMEs to invest in their businesses and stay competitive.
However, in response to the COVID-19 pandemic, the Australian Federal Government introduced temporary full expensing as part of its economic rescue package. This measure was available to businesses of all sizes and removed the size limits on asset purchases that existed under the IAW program. This initiative has provided businesses with a much-needed boost during a challenging period, allowing them to invest in their growth and upgrade equipment.
“Historically, business tax depreciation was cumbersome for smaller enterprises to administer,” she 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.”
Save your asset write-off for 2024 if you don’t need it this year
Belinda advises SMEs to carefully consider whether to use the instant asset write-off (IAW) program this financial year. She suggests seeking professional advice and considering business results before deciding to claim the deduction to reduce tax bills. If a business doesn’t need the deduction, it’s better to save it for when it’s needed. She also highlights the importance of ensuring assets purchased under the IAW program are installed and ready for use by June 30, 2023, to be eligible for the deduction.
Sectors relying on physical assets, such as agriculture, mining, and construction, will be the most heavily impacted by the ending of the IAW program. Although the government has announced new initiatives, such as a skills and training boost and technology investment boost, they may not have the same generic application as the IAW program.
The new 20% uplift deduction for businesses spending on skills training and digitization is only available to businesses with aggregated turnover below $50 million. It is also only available until June 30, 2024, and only for training conducted with registered training organizations. Moreover, it will be inconsistently beneficial across sectors, as learning in some sectors, such as agriculture, is often on the job rather than through formal accredited courses.
Ms. Crowley expects the impact of the new depreciation initiatives to be seen over time. She anticipates that these initiatives will be harder for businesses, especially asset-intensive businesses, to access. Nonetheless, IT and similar sectors could benefit from these new deduction initiatives.
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