Small business accelerated depreciation provision extended
(13 September 2018 - Australia) Legislation to extend the instant tax write-off for SMEs purchasing new plant and equipment (P&E) with a value up to A$20,000 has passed parliament.
The highly popular accelerated depreciation provision for small businesses will be extended for another year to June 2019. The measure allows enterprises with annual turnover of less than A$10 million to immediately deduct purchases of new or replacement assets under a total or combined value of A$20,000. The scheme which was first introduced in the 2015/16 federal budget and has proved popular with Australian CFOs and corporate treasurers at a time when non-mining capital expenditure is firmly in focus following the mining boom. The scheme is applied when a company that bought an asset before 30 June which cost less than A$20,000 can write off the business portion in their 2018 tax return. Businesses are eligible to use simplified depreciation rules and claim an immediate deduction for the business portion of each asset, either new or replacement P&E, costing less than A$20,000 if they had a turnover less than A$10 million (increased from A$2 million on 1 July 2016) and the asset was first used or installed ready for use in the income year they were claiming it in. Assets that are valued at A$20,000 or more can't be immediately deducted. They will continue to be deducted over time using the general small business pool.
The federal government stated in the 2017/18 May budget that it was seeking to extend the write-off until June 30, 2019 however key decision makers in the Micro business and SME segments were required to wait a further four months for the extension to be confirmed. The legislation passed the Senate with no amendments, despite Greens Senator Nick McKim pushing for an extension of the write off amount to A$30,000 when capital was allocated to clean energy or energy efficient equipment specifically. Receptiveness to new energy efficient technology is rising among Australian businesses according to CBA’s ‘Equip’ research. The same amendment was proposed in lower house by Greens MP Adam Bandt who saw it as a way for the government to provide small businesses with an incentive to switch away from fossil fuels. “We think businesses should get a greater level of government support if they’re investing in energy efficiency or switching from fossil fuels to renewables, so the instant asset write-off should be increased to support this,” he said. Senator Zed Seselja commented in the Senate that the government would not be supporting the amendment because it does not align with its budget impact calculations. “The government’s A$20,000 instant asset write off is widely supported by stakeholders and applies to all small businesses with an annual turnover of less than A$10 million dollars. In extending the threshold further yet, the government has sought to strike a balance between helping small business’ cashflow and investment and the revenue impact on the budget. We therefore don’t support the amendment.”
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell welcomed the passing of the legislation. “This gives small businesses and family enterprises more time to invest in their business, and buy the equipment they need to grow and prosper. That might be a new computer, photocopier, cash register, restaurant oven or a second-hand ute, printer or generator – as long as they have been purchased for less than A$20,000. There is no limit on how many assets can be claimed. We will still continue to push for embedding the instant asset write-off in legislation and raising the threshold to at least $100,000. For capital-intensive businesses, A$20,000 is too low. For example, if you’re a farmer and you want to buy an asset like a tractor, you’re not going to get one for anywhere near the A$20,000 threshold.” The ASBFEO said the small businesses that claimed the instant asset write-off last year soon realised the financial advantage of doing this. “The claim process is quite simple - all you have to do is include it in the appropriate section of your tax return paperwork. There are some exclusions, which you can find on the Australian Taxation Office website, as well as other useful information. Small businesses and family enterprises need to remember that this is a tax deduction, not a rebate – so you need to make a profit to claim the benefit. So make sure you really need the asset before purchasing, and we don’t encourage people to go into debt to take advantage of the write-off.”