Keystone Private Advisory -The expansion of the instant asset write-off has been a welcome measure.

Amongst the terrific stimulus measures introduced over the past ten months, the expansion of the instant asset write-off has been a welcome measure, particularly for capital intensive businesses.

Managing tax and accounting records, specifically, fixed asset registers becomes an important element in ensuring correct income tax treatment.  Correctly reflecting dates on which assets are acquired, and indeed, dates on which those assets are installed ready for use becomes a key aspect in the process.

The table below provides an overview of the various write-offs available over the years.

Time Period Cost Threshold Business Type
1 July 2011 to 30 June 2013 $1,000  SBE* (turnover<$2m)
1 July 2012 to 31 December 2013 $6,500  SBE* (turnover<$2m)
1 January 2014 to 12 May 2015 $1,000  SBE* (turnover<$2m)
12 May 2015 to 30 June 2016 $20,000  SBE* (turnover<$2m)
1 July 2016 to 28 January 2019 $20,000  SBE* (turnover<$10m)
29 January to 2 April 2019 $25,000  SBE* (turnover<$10m)
2 April 2019 to 11 March 2020 $30,000  SBE* (turnover<$50m)
12 March to 6 October 2020 $150,000  SBE* (turnover<$50m)
7 October 2020 to 30 June 2022 No cost limit  SBE* (turnover<$5billion)

*Small Business entity

One of the more common business assets that come to mind when considering this instant asset write-off is motor vehicles.  Taxpayers must keep in mind that notwithstanding the general nature of the instant asset write-off, cars (designed mainly for carrying passengers) remain subject to the cost limit (currently $59,136). 

For small business taxpayers who have chosen to use the small business capital allowance concessions, including the use of a small business asset pool, the instant asset write-off measures result in those pool balances being fully written off, either in the year ended 30 June 2020 (if the pool balance was less than $150,000) or otherwise in the year ended 30 June 2021.

Whilst at first instance, the immediate deduction in respect of assets and small business asset pools is attractive, this of course has a further impact, depending on the business structure.  Deductions in future years will be reduced, resulting in higher taxable income figures for those future years.  For many businesses, those future years will have greater levels of income as they come out of the slower 2020 and 2021 COVID-impacted years.  For non-corporate structures (e.g., sole traders and discretionary trusts with individual beneficiaries), this could result in tax being paid at higher marginal rates in later years.

In an Act passed in December and a bill currently before parliament (Treasury Laws Amendment (2020 Measures No. 6) Act 2020), taxpayers are offered the ability to opt-out of the instant asset write-off on an asset-by-asset basis.  We will monitor the progress of the bill to see how it sits in the final form.  On our read of the Act, this ability to opt-out of the instant asset write-off DOES NOT apply to those taxpayers that have chosen to use the small business capital allowance concessions.  Given it is most likely small business entities that would be impacted by the forced instant asset write-off and write-off of small business asset pools, one wonders why small business taxpayers were not included in this amendment.  To avail themselves of this choice not to apply instant asset write-off, these taxpayers would need to choose NOT to apply the small business tax concessions in the 2021 year.  Such a choice would then exclude them from re-applying the small business tax concessions for a 5-year period.

So much for a simplified depreciation system!

What seems like a relatively simple concession can in practice give rise to many difficulties.  The team at Keystone Private Advisory are always happy to assist in these matters.

By Paul Mills