Uncertainty over instant asset write-off leaves SMEs and accountants in the lurch

The end of the financial year is fast approaching and accountants are finding it difficult to advise small businesses about the instant asset write-off scheme – which continues to plague both houses of parliament.

A quick catch-up on the instant asset write-off drama

A 12-month extension of the $20,000 instant asset write-off was a key measure in the 2023-24 federal budget and is designed to help SMEs by allowing them to claim an immediate tax deduction for eligible purchases.

However, the scheme’s future remains uncertain as the bill amendment is stuck in legislative limbo.

The federal government is still yet to pass the bill amendment with only a handful of parliamentary sitting days left before June 30 when the extension to the write-off would in fact end. This uncertainty is causing frustration among both accountants and their small business clients.

The political drama between Treasurer Jim Chalmers and the federal opposition has only intensified the issue, with Chalmers accusing the opposition of delaying tactics that could leave millions of small businesses in the lurch.

The Opposition has also hit back, placing the blame on Labor for voting against an amendment that would raise the threshold for eligible assets to $30,000 eight times.

“Labor has voted against modest extensions to small business tax concessions eight times while giving $13.7 billion in tax subsidies to some of Australia’s biggest companies and billionaires,” Shadow Treasurer, Angus Taylor, told SmartCompany.

“The only people standing in the way of tax relief for small businesses is the Albanese Labor government. It’s clear the Prime Minister and Treasurer have no idea what it’s like to run a business, and don’t care.”

Shadow Minister for Small Business, Sussan Ley, has also weighed in.

“It is disappointing the government is trying to sheet blame on everyone but themselves when it comes to this issue,” Ley said to SmartCompany.

“Labor runs the Parliament, and they control the flow of bills through the Parliament and any delay to the legislative schedule is a matter for them to explain,” she added.

“If small business was a priority for this government, we would not be in this position it is as simple as that. Small business owners deserve an explanation from the government about why they are yet to pass this important legislation with just days to go in the financial year.”

Instant asset write-off delay affecting small business accountants

While an instant asset write-off has been in place in some form or another for years, Stacey Price, founder and accountant at Healthy Business Finances, says misunderstanding is rife among small business owners due to the scheme.

“People think it’s a $20,000 rebate of some kind, but they have to spend the money first,” Price explains to SmartCompany.

“There’s also a lot of talk about whether buying a $20,000 item reduces their tax bill by $20,000, which is not the case.”

Price also emphasises the difficulty in advising clients due to the legislative uncertainty of the scheme.

“We want to have conversations with our clients, but we’re having conversations about potential things that may or may not get over the line,” Price says.

“We don’t want to commit and say ‘yes, it’s all above board’ if something is potentially going to change.”

Lisa Greig, principal accountant at Perigee Advisers, echoes these concerns.

“My clients are frustrated when I can’t provide definitive advice. The delay and potential changes make it difficult for us to advise on deductions,” Greig says.

Time is ticking

Timing has also become an issue. Even if the instant asset write-off bill was to pass, it would likely happen days before the end of the financial year.

“People can’t wait until the 29th of June to buy items, because they might not be in stock or they might not be able to get the item they need,” Price says.

“Businesses need to make those decisions now.”

Greig agreed and called into question how useful the scheme is under these circumstances.

“What sort of incentive is it if we don’t know whether we’re going to get it or not? Clients need to plan, but this uncertainty makes it nearly impossible,” she says.

The uncertainty surrounding the scheme also makes clients nervous about spending money and “then not being able to make a full deduction”, says Price.

“It’s a significant risk.”

Greig says this has a trickle-down effect on accountants themselves.

“Clients are frustrated because they’re paying us to advise them, and we can’t give them a clear answer. It makes us look bad,” says Greig.

Calls to make the instant asset write-off permanent to quell confusion

The historic adjustments to the instant asset write-off scheme have added to the confusion.

Initially introduced in 2015 with a $20,000 threshold, the scheme’s limits have fluctuated significantly.

During the pandemic, the threshold was temporarily increased to $150,000 before the value cap on purchases was removed entirely in 2020 under the Temporary Full Expensing measure, which allowed businesses with up to $5 billion in turnover to claim immediate deductions for all eligible assets.

“The scheme’s changing limits over the years have confused clients,” Greig explains.

If the bill doesn’t pass, the impact on small businesses could be more significant than not being able to automatically write-off certain assets.

“Clients could face significant tax bills and administrative burdens. For example, farmers who might face big tax bills due to changes in write-off eligibility,” Greig adds.

With the legislation deadline fast approaching, accountants are urging for clarity. This has become even more important since the scheme was extended again in the 2024-25 budget, despite last year’s extension not yet becoming law.

Treasury has confirmed with SmartCompany that legislation for this second extension will need to be passed separately by June 30, 2025.

“Clients often assume the extension means it will pass, adding to the confusion,” Price says.

Both Price and Greig agree that a permanent, well-defined scheme would provide much-needed stability for the Australian small business community. It would also put an end to the political back-and-forth that is leaving small businesses and their advisors caught in the middle.

“For me, personally, if I’m going to spend $20,000, I would really like to know that there is an actual benefit now. A permanent scheme would make that much clearer,” Price says.

“The instant asset write-off should be permanent and defined. It should not be for brownie points and getting headlines on budget night,” Greig adds.

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