ATO not worried about small business rorting $20,000 asset write-off – and you can claim a ping-pong table

Anyone for ping pong?

The Australian Tax Office has revealed it has little cause for concern that small businesses will rort the government’s proposed $20,000 asset write-off scheme during a grilling by senators that also discussed whether or not the purchase of a ping pong table for an office would qualify under the scheme.

ATO commissioner Chris Jordan and acting second commissioner of law design and practice for the ATO, Neil Olesen, fronted the Senate Estimates Committee yesterday to answer questions about measures included in the federal government’s second budget.

Jordan and Olesen were grilled by Greens Senator Peter Whish-Wilson and Labor Senator Jenny McAllister over what compliance procedures the ATO has in place to prevent “rorting” of the accelerated depreciation measure, which will allow small business that turn over less than $2 million annually to immediately claim tax deductions on assets purchased for their business up to the value of $20,000.

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Jordan described monitoring how small businesses use the scheme as “a normal activity that we would look at”.

“This is not something new for us at all,” Jordan said, telling Whish-Wilson the ATO is “very familiar with compliance activities around particular incentives where people might sneak something in or bring it forward”.

“There have been multiple examples over the decades of different incentives being brought in that have a start date, a finish date and that sort of thing.”

But Jordan and Olesen indicated they are not concerned about the potential for the scheme to be misused, with Olesen telling the committee he has “no particular intelligence that causes me to worry there at the moment”.

“The debate we are seeing the community seems to be a pretty level one about what the incentive is and how it operates,” Olesen said.

However, Olesen did acknowledge the ATO will monitor the number of new business registrations as a potential indicator of individuals attempting to use the measure to gain an unfair advantage.

“Yes, I think if there are any abnormal trends across a lot of those indicators for small businesses, they would be things we would be going to try and give ourselves a sense of where issues may or may not lie,” he said in response to a question from Whish-Wilson.

What about ping-pong tables?

But the discussion then turned to the types of assets businesses could purchase, with Finance Minister Mathias Cormann also weighing in on a detailed discussion about ping-pong tables.

“With ping-pong tables, it depends on the sort of business you are running,” said Cormann.

“If you are running a business where people can come and play ping pong against a fee, and that is how you generate your income, then a ping-pong table might be quite appropriate.”

“But, if you buy a ping-pong table for your personal use, then clearly that is not an appropriate business deduction.

Olesen agreed that a ping-pong table would qualify under the scheme, including if it was purchased for the sole use of employees in an office.

“If a small business were to buy some facilities that were permanently located in their business premises exclusively for the use of their employees whilst in the workplace then that would probably qualify, yes,” he said.

Does it directly relate to the running of your business?

Maree Caulfield, director of tax for accounting practice MGI, told SmartCompany this morning the scheme will apply to most assets that businesses use to generate income and so the type of assets that fall into this criteria “can be pretty broad”.

“It can include coffee machines, computers, all the standard things you see in most offices,” Caulfield says.

“Hotels will have some of the more interesting deductions, including ping-pong tables or even pinball machines if those things are important to attract customers.”

“Cafes may by buying chairs and tables. Gyms could be buying new equipment, so a new treadmill could be included.”

But there are particular purchases that won’t qualify as they are covered by other aspects of tax law, says Caulfield. This includes building works and construction.

Caulfield says the test to determine if a particular purchase will qualify for the scheme is if it directly relates to the carrying on of a business. She says in the case of rental properties, if you buy something that just one person will use, that would not qualify.

Caulfield shares the ATO’s view that the opportunity for rorting of the system is “limited”, saying the various anti-avoidance provisions that are already built-in to Australian tax law will ensure individuals who are not carrying on a real business will not be able to claim the benefit from making a loss against other taxable income unless the business they operate is profitable.

“It’s already carved out in other areas of our tax law,” she says.

But Caulfield believes there is misunderstanding in the general community about what the measure is and its potential benefit, saying MGI received plenty of phone calls in the week after the budget from business owners asking when they will receive “the cash” from the government.

She says it is important to remember the scheme is not a cash rebate, but instead a mechanism to reduce a business’ tax bill.

“It’s really important people realise there may be a big delay in getting the benefit too,” Caulfield says.

“If you buy an asset today and claim it in your 2015 tax return, it may not be until May next year that you see the benefit from a cash flow point of view.”

Caulfield says the scheme will provide “exactly the same” depreciation value of a particular asset but faster. But this doesn’t mean small businesses should “buy things they don’t need”. Instead, she says the businesses that stand to benefit the most are those that already had plans to purchase new assets.