$20k instant asset write-off ‘too small’ for SMEs, says broker

The bill includes a significant increase in the instant asset write-off, raising it from $1,000 to $20,000.

The $20,000 threshold applies on a per-asset basis, allowing small businesses to instantly write off “multiple assets” and remains a "temporary measure".

Despite this increase, it falls short of the COVID-19 incentive policy introduced in 2020, where the government imposed a $150,000 write-off threshold, resulting in a surge in asset finance.

Karlie Scharfenberg, a broker at The Loans Suite, expressed scepticism about the impact of this change, citing its limited scope.

She said: “$20,000 overall doesn’t help small businesses with adding back tax breaks,” highlighting that it excludes cars and machinery, which are often considered deductible assets.

Ms Scharfenberg added she was still seeing a lot of businesses purchasing machinery and seeking cash flow lending for business growth at the moment.

“People are still buying businesses and expanding their portfolios.”

Under the proposed changes, small businesses with an aggregated annual turnover of less than $10 million will have the ability to immediately deduct eligible assets costing less than $20,000.

These assets must be applied or installed and ready for use between July 1, 2023, and June 30, 2024.

However, depreciating assets first used or installed for a taxable purpose on or after July 1, 2024, will still be subject to the previous $1,000 threshold.

Prospa’s co-founder and chief revenue officer, Beau Bertoli, welcomed the bill, stating it is likely to be “well-received and provide much-needed relief to SMEs” during challenging times.

“The instant asset write-off provisions continue to be a valuable incentive for small businesses, encouraging them to invest in new equipment, tools, and assets—an effective way to reduce costs, improve cash flow, and pave the way for growth,” Mr Bertoli said.

Assets of more than $20,000

For assets that cost $20,000 or more, as well as costs exceeding $20,000 related to depreciating assets, these expenses are allocated to a small business entity’s general small business pool, deductions are made at specified rates.

For instance, if an individual purchases a utility vehicle (ute) for $50,000 and intends to use it 50 per cent of the time for business and 50 per cent for private use, the instant asset write-off cannot be applied since the total cost exceeds the $20,000 threshold.

Instead, the $25,000 taxable purpose proportion of the cost of the ute (50 per cent of $50,000) is allocated to the individual’s general small business pool, who can claim a deduction of $3,750 (15 per cent multiplied by $25,000) in their 2023–24 income tax return.

Deductions for subsequent years will be calculated as 30 per cent of the opening pool balance of their general small business pool.

The bill also extends the deferral of the ‘lock-out’ rule for small businesses that previously opted out of simplified depreciation rules, now extending to June 30, 2024.

Additionally, a new Small Business Energy Incentive will be introduced, offering businesses with turnovers less than $50 million a 20 per cent tax deduction for eligible depreciating assets up to $100,000 for energy-saving upgrades.

Mr Bertoli praised this incentive, as it aligns with Australia’s commitment to achieving a net-zero economy.

He described it as a sensible strategy that can enhance operational efficiency, reduce overall business costs, and support a more sustainable future for small businesses nationwide.

[Related: Small rewards for small business in budget 2023–24]