Many small and medium-sized businesses (SMEs) feel the pressure as the June 30th, 2023 deadline for the instant asset writing-off program draws near. They want to make the most of this program before its end.
Since its introduction in 2015 the program has proven to be a popular initiative among SMEs, allowing them an immediate write-off of the cost of assets up to a specified amount rather than depreciating over time.
Businesses may not realize the implications of the ending of the program and the additional red tape it brings. Belinda Crowley is a principal tax advisor at RSM Australia. She warns businesses to prepare for changes and get professional advice before taking any decisions.
Small businesses with an annual turnover of less than $10 million, will be required to depreciate assets worth more than $1000 over their useful life starting July 1, 2023. The threshold for larger businesses is $100. Any asset purchased above this amount must be depreciated.
Crowley suggests that businesses should keep their depreciation in case they need it later. Also, supply chain issues can affect a business’ ability to claim the instant asset write off. To claim the write-off, businesses must have the asset installed and ready to use by June 30th 2023.
Many SMEs are scrambling for a way to meet the deadline.
Crowley warns, however, that the end to the instant asset write off program is only the beginning of a more serious problem for SMEs – the reintroduction more onerous rules of depreciation. She explains that SMEs might not be aware of the red tape risks associated with more complex depreciation regulations, which can create additional complexity for business owners.
Crowley points out that the phase-out and reintroduction old depreciation regulations could pose short- and long-term problems for SMEs. Businesses will have to act fast to qualify for instant asset write-offs. They will also be faced with the additional burden of complex depreciation regulations that can take a lot of time, which could lead to an increase in costs and administrative burden.
She also recommends that owners of businesses start preparing now for the new rules on depreciation to avoid being surprised by the increased complexity and red-tape.
This is a major burden, both in terms of time and finances, for small businesses. Even if they have their accountants do it for them, this is still an extra expense,” said Ms Crowley.
The threshold for depreciation in larger businesses is $100. Assets purchased over this threshold will be depreciated for their useful life.
Since 2015, the Instant Asset Write-Off (IAW), an initiative of Australia’s small businesses, has become a mainstay. The Instant Asset Write-Off (IAW) program has been a staple of the Australian small business landscape since 2015.
As part of the economic rescue package, the Australian Federal Government has introduced a temporary full expensing. The measure was open to all businesses and lifted the asset purchase size restrictions that were part of the IAW program. This initiative gave businesses a boost they needed during a difficult period. It allowed them to upgrade their equipment and invest in growth.
She said that historically, the depreciation of business tax was a burdensome process for small businesses to manage.
IAW, as a compliance program, has helped business owners save significant money because the depreciation process is now easier to manage. The new federal government’s priorities are different from those of many business owners who hoped that these initiatives would continue.
If you do not need the asset write-off this year, save it for 2024.
Belinda encourages SMEs in the UK to carefully evaluate whether they want to take advantage of the Instant Asset Write-off program (IAW) this year. She recommends seeking professional advice before deciding whether to claim the deduction in order to reduce taxes. It’s best to keep the deduction for later if a company doesn’t require it. She emphasizes the importance of making sure assets purchased through the IAW are installed and ready to use by June 30th 2023 in order to qualify for the deduction.
The IAW program will have the greatest impact on sectors that rely on physical assets. These include agriculture, mining and construction. The government announced new initiatives such as an increase in skills and training and a boost to technology investments, but they may not be as generic as the IAW program.
Only businesses with a combined turnover of less than $50 million are eligible for the new 20% deduction. The new deduction is only available to businesses with a combined turnover below $50 million. It’s also only valid until June 30th 2024 and only applies to training done by registered training organizations. It will also be inconsistently useful across sectors as in some, like agriculture, learning is done on the job, rather than through accredited courses.
Crowley believes that the new initiatives will have a long-term impact. She believes that businesses will have a harder time accessing these initiatives, particularly those with a high asset intensity. IT and other similar sectors may benefit from the new deduction initiatives.