Understanding the instant asset write-off for farmers and small business

Tax Insights

Australian business owners rejoice – legislation extending the well regarded instant asset write-off program has been passed. instant asset write-off

The Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018 passed in the Senate on 12 September 2018 and now awaits Royal Assent.  The Bill extends the period for which small business taxpayers can access the $20,000 instant asset write-off for depreciating assets.

Since the program was introduced in the 2015 Budget, it has been extended twice to 2019.

The government’s agenda with regard to the asset write-off is seen by some as questionable. Though talk of it becoming a permanent feature of the tax landscape is rife, it is certainly a better look for the government of the day to extend the program from year to year.

Despite a 4 month wait for the latest bill to pass, this is a win for small business. While the instant asset write-off may seem generous, it should be noted that it may not benefit all Small Business Entity (SBE) taxpayers. 

The concession will provide an immediate tax deduction for eligible assets, however, for this to be of any benefit is contingent on a number of factors. For instance, the amount of income earned in a year will influence whether accessing the write-off is of benefit for the SBE. Further, the need for cash resources to be available in order to first purchase the asset is also a factor for consideration.

To access the concession, SBE taxpayers must:

  • Be carrying on a business
  • Have aggregated turnover under $10 million
  • Acquire a depreciating asset (for use in their business) for a cost of less than $20,000 (ex GST)
  • Have the asset installed and ready for use before 30 June 2019.

Following the extension period, and from July 1, 2019, the instant asset write-off threshold for depreciating assets purchased by SBE taxpayers will revert to assets costing less than $1,000. While it includes second-hand assets, it does not apply to personal use assets or capital works.

Farmers and fodder – food for thought asset_9.png

SBE taxpayers aren’t the only ones in the spotlight when it comes to instant asset write-offs.

In what appears as an attempt to provide relief to drought-stricken farmers, the Treasury Laws Amendment (Supporting Australian Farmers) Bill 2018 was introduced to Parliament on 13 September 2018.  The Bill was passed by the Senate Wednesday 20 September 2018 without amendment and now awaits Royal Assent.

The legislation allows primary producers to immediately deduct the cost of fodder storage assets such as silos and hay sheds used to store grain and animal feed.  Currently, primary producers can only depreciate such assets over three years.

The legislation instructs that eligible assets should be installed or first used on or after 19 August 2018, with the intention to make it easier for primary producers to invest in, and stockpile fodder.

A generous concession at first glance. The reality is that farmers still need sufficient cash resources at the ready to enable investment in eligible assets and further, make a profit in order to use the benefit. 

Farmers struggling in drought conditions and facing current year tax losses plus cash flow issues may find the measure falls short of providing significant immediate relief.

For SBE and struggling farmers, while tax breaks are welcome news they should be approached with caution and careful consideration. Purchasing expensive equipment just to access the write-off seems counterproductive.

Read the fine print – the devil is in the detail

Primary producers and their advisers should be mindful of the fine print though, as the Explanatory Memorandum (“EM”) published with the draft legislation indicates only primary producers who have their own livestock will meet the criterion in order to access the measure.  
Due to the complexities of assessing whether instant asset write-off is of benefit, it is best to discuss your personal situation with a technical expert.  Your local RSM adviser is always available to discuss the finer points if you are unsure how the instant asset write-off legislation impacts your business. 

Contact your local adviser >>

RSM in Sydney - providing accountanting, auditors and consultants for sydney Businesses