A ramped-up instant asset write-off scheme will offer small businesses tax breaks on eligible purchases over the next financial year, the 2023-2024 federal budget papers reveal, averting fears the scheme would drop to cover purchases of just $1,000.
At the same time, however, the $20,000 threshold is significantly lower than the tax breaks provided by the previous Temporary Full Expensing measure, which allowed businesses to claim an immediate tax deduction for any eligible asset, regardless of value.
So what can small businesses claim next financial year, and who is eligible?
Here’s what you need to know.
The new (or updated) instant asset write-off scheme will be available to eligible businesses that have an annual turnover of less than $10 million.
This differs substantially to the Temporary Full Expensing measure, which was introduced in 2020 during the COVID pandemic and was available to all Australian businesses with up to $5 billion in annual turnover.
Similar to previous instant asset write-off schemes, eligible small businesses will be able to claim a tax deduction for the full value of a purchase after its use, rather than claim depreciation amounts over several years.
The scheme will cover eligible purchases up to the value of $20,000, which is the same level that was in place in 2015.
The government hopes the measure will improve cash flow for small business, while lowering the compliance and accounting costs of managing depreciation over several years.
This version of the instant asset write-off scheme will be in place from July 1, 2023, to June 30, 2024.
This means businesses will need to have the assets installed and ready to use between July 1, 2023, and June 30, 2024.
As in previous years, the instant asset write-off scheme will apply to all depreciable assets, as long as they are below the $20,000 threshold.
The $20,000 threshold will operate on a per-asset basis, the budget papers add, meaning “small businesses can instantly write off multiple assets”.
According to the budget papers, assets valued at $20,000 or more (which cannot be immediately deducted) will continue to be able to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year, and 30% in each subsequent income year.
Temporary full expensing, a turbo-charged version of the instant asset write-off scheme introduced in October 2020 that allowed assets of any value to be immediately deducted, was slated to expire on 30 June 2023 and that is still the case.
Tax experts had warned of a “cliff” facing small businesses at the completion of the Temporary Full Expensing scheme, when the accelerated depreciation rules return to the previous $1,000 limit. While the 12-month duration of this budget’s $20,000 instant asset write-off scheme offers some relief from this, it will be short-lived.
The recent history of accelerated depreciation rules for small businesses in Australia is complicated, with multiple scheme running simultaneously and different governments adjusting thresholds and eligibility criteria.
Here’s a plotted history:
Under the Gillard government, small businesses were free to immediately claim a full tax deduction on expenses under $1,000, instead of writing off the cost using standard depreciation schedules over several years.
The upshot: small businesses could cut their tax burdens in the year the purchase was made, while also easing the administrative burden of assessing depreciation on relatively small purchases.
To be eligible, businesses must have reported an aggregated annual turnover of less than $2 million, a level which remained in place until July 1, 2016.
The limit lifted to $6,500 the next year, opening the instant asset write-off to bigger purchases like cash registers, POS devices, and more significant tech upgrades.
Then-Treasurer Wayne Swan said the uptick would improve business cash flow at a time of weak consumer spending.
“Maintaining a strong cash flow is vital for small businesses and the less time small business people spend with their tax return, the more time they have to grow their businesses,” he said.
After defeating Labor at the September 2013 election, Swan’s replacement, Joe Hockey, declared the new Coalition government would wind back the instant asset write-off.
Labor had pledged to fund the measure through the Minerals Resource Rent Tax (MRRT), a policy measure the Coalition long argued against.
“The former government linked a number of spending measures to the failed MRRT,” Hockey said.
“These came at a significant cost to the budget, to the point where the government is borrowing money to pay for these commitments.”
Subsequently, the instant asset write-off threshold returned to $1,000.
The 2015-2016 federal budget, delivered by Hockey, contained something of a change of heart: the instant asset write-off threshold was lifted to $20,000.
Explaining the move in his budget night speech, Hockey reiterated its importance to small businesses.
“It means innovation. It means jobs. It means more money to invest and grow your business,” he said.
“If you run a café, it might be new kitchen equipment, or new tables and chairs.”
The instant asset write-off threshold remained in place for two-and-a-half years, but expanded to cover more small businesses.
After this time, entities with aggregated annual revenue of $10 million became eligible.
The instant asset write-off asset limit rose to $25,000 the next year, nudging the write-off firmly towards ute territory, allowing construction firms to gear their automotive upgrades towards the deduction.
A subsequent lift saw the limit rise to $30,000.
The next major change came as the Morrison government stared down the COVID-19 pandemic and the possibility that public health measures would crush small business spending.
To compensate, the instant asset write-off limit was lifted to $150,000, offering small businesses a massive array of potential deductions.
The Morrison government also lifted the turnover limit all the way to $500 million.
“Hardworking Australian businesses can rest assured that the Morrison Government will do all that is necessary to support them to bounce back stronger and get to the other side of this crisis,” then-Treasurer Josh Frydenberg said in June while announcing a six-month extension to December 2020.
With the economic consequences of the COVID-19 pandemic now clear, the Morrison government introduced Temporary Full Expensing, a turbo-charged version of the instant asset write-off designed to foster even more business expenditure.
It enabled businesses with annual turnover under $5 billion an immediate deduction of the full value of all new, eligible, depreciable assets of any value that are first used or installed before June 30, 2022.
Temporary Full Expensing was extended for another year.
Small business groups called for the measure to be made a permanent feature of the tax landscape, but until last night, it was not clear what would replace the expanded scheme, or if it would revert to its $1,000 instant asset write-off limit installed more than a decade ago.
Small businesses will be eligible for $20,000 instant asset write-offs, the same level as in 2015.
Eligible businesses must have a turnover of less than $10 million.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
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