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Small businesses will be able to claim an immediate deduction for assets less than $20,000 under amendments to the Income Tax (Transitional Provisions) Act 1997 introduced to Parliament on Wednesday.

Nearly four million small businesses with an annual turnover under $10 million will be eligible under the scheme, which is estimated to cost the government $290 million over five years.

Treasurer Stephen Jones and Minister for Small Business Julie Collins said in a joint statement that the instant asset write-off scheme would encourage businesses to invest in more capital resources.

“The $20,000 instant asset write-off will help improve cash flow and reduce compliance costs, while the Small Business Energy Incentive will ease pressure on energy bills and help small businesses become more energy efficient,” they said.

“The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets. This is targeted, responsible support, to help Australia’s small businesses continue to grow.”

“Small businesses are the engine room of Australia’s economy, which is why these new measures are so critical.”

The Tax Institute senior advocate Robyn Jacobson said she was pleased to see the temporary increase in the write-off threshold but said there would be “minimal revenue impact” due to the costs to the government.

Ms Jacobson added that the “constant tinkering” of the scheme has made it difficult for businesses to keep on top of current laws.

“While there may be concerns about the inflationary impact of allowing immediate deductions for the cost of certain depreciating assets, what is paramount in a good tax system is simplicity, certainty and efficiency,” she said.

She suggested introducing a permanent scheme for small to medium businesses with an annual turnover of less than $50 million and for assets costing less than $50,000.

“Annual changes increase the risk of errors and result in uncertainty, particularly when the measure will apply from 1 July 2023 this year and the amendments have not yet been legislated,” she said.

The scheme’s genesis can be traced back to a $1,000 deduction introduced by the Gillard government in 2012 and it has undergone a raft of changes in the last decade in response to changing economic conditions.

As part of the COVID-19 measures, the government scaled up the threshold to $150,000 and increased eligibility to encompass businesses with a turnover limit of less than $500 million.

The latest amendment, announced in the 2022–23 federal budget, will scale back the write-off and eligibility limits back to $20,000 for small businesses only.

Ms Jacobson said that “while this will feel like a reduction of what was available throughout the pandemic until 30 June 2023 under the temporary full expensing measure, people should be aware that it’s actually an increase as the write-off threshold would have otherwise reverted to $1,000 from 1 July 2023 without this measure”.

The change was part of a broader array of measures introduced for small businesses on Wednesday.

The bill will also create a 20 per cent deduction for businesses that make less than $50 million annually buying equipment that supports electrification or efficient energy use this financial year.

“The new small business energy incentive builds on the Albanese government’s measures to help small businesses become more energy efficient and ease pressure on their energy bills,” Mr Jones and Ms Collins said.

Christine Chen
15 September 2023
accountantsdaily.com.au