Instant asset write-off to ‘skip the line’ of legislation in the Senate

Doubt has been raised as to whether the recently announced increase to the Small Business Instant Asset Write-off threshold from $20,000 to $25,000 and effective 29 January 2019 to 30 June 2020 will be passed before the Federal election.  

At the time the measure was announced, Prime Minister Scott Morrison indicated the Government would seek to legislate this increase as soon as the Parliament returned in early February. The proposed Bill was introduced to the House of Representatives on 13 February 2019 and as at the current date has not been passed.  In order for the change to come into effect, the proposed Bill must be passed by both, the House of Representatives and the Senate and receive Royal Assent. 

The small business instant asset write-off was initially introduced in the 2015 Federal Budget and has become an annual ‘carrot’ for small business, with the initiative being extended by a further 12-month period in the 2017, 2018 and 2019 Federal Budget.  We question whether the concession should now become a permanent feature of the small business tax concessions.  The current threshold of $20,000 was to revert to $1,000 on 1 July 2019.  If the proposed change is passed by Parliament, the $25,000 threshold will be in effect until 30 June 2020.

Interestingly the Prime Minister’s proposal to fast track the legislation remains a challenge particularly considering the number of outstanding Bills before the Parliament and the fact there are only two remaining sitting dates in April before Parliament is dissolved. 

The Prime Minister in his announcement indicated the Coalition is serious about family businesses, with the increase in instant asset write off threshold allowing small businesses to reinvest their own money back into the business to support jobs and wages. With a pending election, this will no doubt be in the minds of small business taxpayers.

Instant Asset Write-off Criteria 

Taxpayers are reminded that to claim the instant asset write-off, the taxpayer must meet the following criteria:

• Be carrying on a business
• Have an aggregated turnover of less than $10 million
• Acquire the depreciating asset (for business use) for a cost of less than $25,000 (ex GST)
• Have the asset ready for business use

Small business owners should be aware, not all assets under the threshold will be eligible for the instant asset write-off.  Business use assets which would normally be eligible for a depreciation deduction will be eligible, however assets classified as capital works such as building extensions, structural improvements, retaining walls (which are not depreciating assets) will not.

So, what is in and what is out?

Keep in mind that the purchase of a car and other big-ticket items may muddy the waters.

For example, when purchasing a car for work purposes, before an instant asset write-off can be claimed, fringe benefits tax and GST implications may need to be considered.   

But wait, there’s more

Taxpayers should be mindful that the instant asset write-off is merely an acceleration of the timeframe that small businesses can claim the deduction, there is no extra deduction available.

Small businesses using a small business pool can generally depreciate an asset over 3.5 years as opposed to instantly with this concession. Likewise, there is also no extra cash available for this write-off, so eligible businesses will need to consider cash flow issues.

While incentives for small business are always welcome, taxpayers are reminded the increase in the threshold may be proposed to apply eligible asset purchases made from 29 January 2019, however, the proposed change will not become law until the legislation has been passed by both houses of Parliament and receives Royal Assent. 

Given the backlog of legislation before Parliament, there are no guarantees that the proposed Bill will be passed during the final two sitting days in April.  If the proposed Bill is not passed before Parliament has dissolved, the Bill will lapse. Whether the proposed measure is re-introduced will be dependent on the newly elected Government.

For more information

If you are unsure of how the proposed change to the small business instant asset write-off will impact on your small business, contact your local RSM office for advice specific to your circumstances.