On 13 September 2023, Treasury Laws Amendment (Support for Small Business and Charities and other Measures) Bill 2023 (Cth) was introduced into the Commonwealth Parliament to allow a deduction of $20,000 for the instant asset write-off of depreciating assets acquired by small business entities from 1 July 2023.

These rules were previously announced by the Commonwealth Government in the May 2023 Federal Budget.

The legislation containing these measures had not passed the House of Representatives at this stage.

As a background, the various temporary full-expensing rules allowing full write-off and other relief measures arising out of the COVID-19 pandemic ceased on 30 June 2023.

The current rule for the year ended 30 June 2024, before this legislation is passed, is that only assets up to $1,000 (excluding GST) will be entitled the instant asset write-off.

From 1 July 2023, under simplified depreciation rules, depreciating assets costing less than $20,000 (excluding GST), may be immediately deducted, where the asset is first used or ready for use in the year ending 30 June 2024 (section 328-180(6)(e) of the Income Tax (Transactional Provisions) Act 1997 (Cth)).

The $20,000 threshold will apply on a per asset basis with multiple assets able to be written off.

Turnover – less than A$10 million

The instant asset write-off rules are available to entities that meet the definition of small business entity and where the entity carries on a business with an aggregate turnover of less than A$10 million (section 328-110 of Income Tax Assessment Act 1997 (Cth)).

Connected entities to a small business taxpayer may also need to be considered to qualify for a deduction to the $20,000 instant asset write-off.

Deduction for low value pools – depreciating assets that cost $20,000 or more

Depreciating assets that cost $20,000 or more are allocated to a small business entity general small business pool may be deducted at the following rates:

  1. 15 per cent in the year the depreciating asset are allocated to the pool;
  2. 30 per cent in subsequent years;

(refer section 328-180(6)(e) of Income Tax (Transition Provisions) Act 1997 (Cth)).

 

The following examples illustrate the operation of the $20,000 instant asset write-off for small businesses that applies in the period from 1 July 2023:

Example

Denis and Mark operate sole trader businesses which are both small business entity’s which have elected to use the simplified depreciation rules.

Assets below the threshold:

On 1 November 2023, Denis purchases a laptop for $4,000 to be used 100% for business purposes. Denis can use the instant asset write off to immediately deduct the full cost of the laptop as it is below the threshold of $20,000.

Assets exceeding the threshold:

On 1 December 2023, Mark purchases a car for $50,000.  He estimates the car will be used 50% for business, and 50% for private purposes.

Mark is not able to use the instant asset write off as the total cost of the car of A$50,000 is above the $20,000 threshold.

The $25,000 taxable portion of the cost of the car is allocated to the general small business pool.

He is able to claim a deduction of $3,750 (15% x $25,000) in the year ended 30 June 2024.

Deductions for subsequent income tax years will be calculated at the rate of 30%.

Other rules

If the balance of a small business entity’s general small business pool is less than $20,000 at the end of the income year ending 30 June 2024, the small business entity can claim a deduction for the entire balance of the pool.

Be aware of certain lockout rules that may if a small business taxpayer has elected to enter the instant asset rules, then in a subsequent year opts out (section 328-180 of Income Tax (Transition Provisions) Act 1997 (Cth)).

 

For more information and to explore what is relevant to your unique situation, please contact your trusted advisor.

 

 

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