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SKY UPDATE | 2023/24 INSTANT ASSET WRITE-OFF FIASCO

May 23, 2024

For tax purposes, the purchase of an asset is considered ‘capital’ and is not immediately tax deductible.

Businesses purchasing assets may be able to claim a ‘depreciation’ deduction under the Capital Allowance provisions contained in Division 40 of the Income Tax Assessment Act 1997 (ITAA97).

Where allowable under Division 40, the cost of the asset is depreciated meaning that the cost is progressively claimed over the ‘effective life’ of the asset.

Businesses can self-assess the effective life of an asset or rely on the ATO published effective lives per Tax Ruling TR 2022/1

Overlaying the Capital Allowance provisions in Division 40 is Subdivision 328-D of the ITAA97 which contains ‘simplified depreciation’ rules applicable to small business entities (turnover <$10m).

In particular, Section 328-180 of the ITAA97 provides for an immediate deduction where the cost of the asset is below the legislative threshold.  That threshold being $1,000.

Over the last decade, governments have consistently applied temporary increases to this threshold.  Most recently, we had the unlimited ‘temporary full expensing’ provisions which ended on the 30th of June 2023. 

In the 2023/24 Federal Budget handed down in May 2023, the Labour government announced yet another extension of the $1,000 limit to $20,000 for the 2024 financial year.

The purpose of the extension is to ‘support small businesses’ and to encourage investment.

As is always the case, we must remember that a Federal Budget announcement is nothing until the enabling legislation is passed by Parliament.

The Bill containing this measure is Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 which was first introduced to Parliament on the 13th of September 2023. 

It was not until the 27th of November 2023 that the Bill was passed by the House of Representatives.

The Senate then sat on the Bill until the 27th of March 2024 when they proposed amendments to the Bill to increase the limit from $20,000 to $30,000, and to lift the eligibility threshold to businesses with turnover of less than $50m.

The Bill then needed to head back to the House or Representatives for them to consider the amendments.  

The only problem was that the House of Representatives was not due to sit again until the 14th of May.  

On the 15th of May the House of Representatives considered and rejected the Senate amendments.  

The Bill was then sent back to the Senate who on the 16th of May, decided that they would insist on the amendments previously proposed. 

Consequently, the Bill has bounced back to the House of Representatives which does not sit again until the 28th of May.

As such, we will need to wait a while longer to see whether the threshold is $20,000, $30,000 or $1,000.

For a measure that is intended to incentivize investment, and that has a cut-off date of 30 June 2024, this situation is far from ideal.

We will keep you updated on the progress of the Bill as further news comes to hand.

A further announcement has been made as part of the 2024/25 Federal Budget to increase the instant asset write-off threshold from $1,000 to $20,000 for the financial year ending 30 June 2025.

Let’s hope that the government can get the legislation through for this in a timelier manner.

In the meantime, please get in touch if you need assistance to navigate the instant asset write-off rules to maximise your tax outcomes.

Sky Accountants Ballarat

Phone: 03 5332 8855

Office Address: 902 Howitt Street, Wendouree, Victoria 3355, Australia

Postal Address: PO Box 2234, Bakery Hill, Victoria 3354

Sky Accountants Gisborne & Macedon Ranges

Phone: 03 5428 1400

Office Address: 45 Hamilton Street, Gisborne, Victoria 3437, Australia

Postal Address: PO Box 270 Gisborne Victoria 3437