— PRATT Partners | Chartered Accountants

14 May

BUSINESS TAXATION

$20,000 instant asset write-off for small business extended to 30 June 2025

The Government will extend the instant asset write-off concession for small businesses for another 12 months.

This will allow small businesses with turnovers capped at $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use for a taxable purpose between 1 July 2024 and 30 June 2025.

Small business entities that use the simplified depreciation rules in Subdiv 328-D of the Income Tax Assessment Act 1997 are entitled to an outright deduction for the “taxable purpose proportion” of the “adjustable value” of a depreciating asset if:

• the asset is a “low cost asset” (and is not an excluded depreciating asset); and

• the taxpayer starts to hold the asset when the taxpayer is a small business entity (and, for a limited period, if the taxpayer also qualifies as a medium sized business).

The deduction is available in the income year in which the taxpayer first uses the asset, or first installs it ready for use, for a taxable purpose. The deduction is known as the “instant asset write-off”.

A depreciating asset is a low cost asset if its cost as at the end of the income year in which the taxpayer starts to use it, or installs it ready for use, for a taxable purpose is less than therelevant threshold.

Current status

In technicality, the increased instant asset write-off concession ceased on 30 June 2023. However, the Government announced last year in the 2023–2024 Federal Budget that it would be extended by one year, so as to finish on 30 June 2024.

That measure was contained in a Bill which is currently before Parliament (that is, it is not yet law). The Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 was passed by the Senate on 27 March 2024 with one amendment relating to the instant asset write-off, which requires the approval of the House of Representatives.

The Senate amendment would:

• extend the coverage from small businesses to medium businesses, ie all entities with an aggregated turnover of less than $50 million; and

• increase the threshold from $20,000 to $30,000.

It is important to note that these proposed amendments have not been reflected in the 2024–2025 Budget announcement, which indicates that the Government will not be supporting them in the House of Representatives.

It is yet to be seen whether the Government will incorporate the 2024–2025 Budget announcement into the Small Business and Charities Bill 2023 or will reintroduce the measures for both years in a separate Bill.

Changes proposed (2023–2024 and 2024–2025)

The increased threshold applies to the cost of eligible depreciating assets, eligible amounts included in the second element of the cost of a depreciating asset, and general small business pools. Depreciating assets that are first used orinstalled ready for use for a taxable purpose on or after 1 July 2023 will be subject to the $20,000 threshold.

The $20,000 threshold will apply on a per-asset basis, so small businesses can instantly write off multiple assets.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

Consequence for lock-out rule

The comments here are, like those above, subject to legislation which is either pending or yet to be seen.

The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out will continue to be suspended for the period of the instant asset write-off concession.

As a reminder, a small business entity that elects to apply the simplified depreciation rules in an income year, and then does not choose to apply the rules for a later income year in which the entity satisfies the conditions to make this choice (ie, the entity “opted out”), is not able to apply the simplified depreciation rules for a period of five income years. This restriction commences from the first of the later years for which the entity could have made the choice to apply the rules. This rule is commonly referred to as the “lock-out” rule.

The operation of the lock-out rule has been modified over recent years so that small business entities did not need to apply the lock-out rule to income years if any day in the year occurs on or after 12 May 2015 and on or before 30 June 2023.

The latest amendments will suspend the operation of the lock-out rule for a combined 24 months to 30 June 2025. As a result of this, small businesses can choose to apply the small business simplified depreciation rules and take advantage of the $20,000 threshold while it applies without being locked out.

TAX COMPLIANCE AND INTEGRITY

ATO BAS notification period extended

The Government will extend the time the ATO has to notify a taxpayer if it intends to retain a business activity statement (BAS) refund for further investigation. The ATO’s mandatory notification period for BAS refund retention will be increased from 14 days to 30 days to align with time limits for non-BAS refunds.

The extended period will strengthen the ATO’s ability to combat fraud during peak fraud events like the one that triggered Operation Protego. Legitimate refunds will be largely unaffected. Any legitimate refunds retained for over 14 days would result in the ATO paying interest to the taxpayer (as is currently the case). The ATO will publish BAS processing times online.

Increased ATO funding to counter fraud

The Government will provide $187.0 million over four years from 1 July 2024 to the ATO to strengthen its ability to detect, prevent and mitigate fraud against the tax and superannuation systems. Measures to be funded includes:

• upgrades to information and communications technologies to enable the ATO to identify and block suspicious activity in real time;

• a new compliance taskforce to recover lost revenue and intervene when attempts to obtain fraudulent refunds are made;

• improvements to the ATO’s management and governance of its counter-fraud activities, including improving how the ATO assists individuals harmed by fraud.

The Government will also provide $0.4 million over four years from 1 July 2024 to the Department of Finance to undertake a Gateway Review process over the life of the proposal to ensure independent assurance, oversight and delivery of the measure.

Shadow Economy Compliance Program and Tax Avoidance Taskforce extended

The Government will extend the ATO Shadow Economy Compliance Program for two years from 1 July 2026. This measure is estimated to increase receipts by $1.9 billion and increase payments by $610.2 million over the 5 years from 2023–2024. This includes an increase in GST payments to the states and territories of $429.6 million.

It will also extend the ATO Tax Avoidance Taskforce for two years, also from 1 July 2026. The Taskforce focuses on multinationals, large public and private businesses and high-wealth individuals. This measure is estimated to increase receipts by $2.4 billion and increase payments by $1.2 billion over the five years from 2023–2024.

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