Small business is suffering as the federal parliament dithers about levels of instant asset write-offs, says chartered accountant GAIL FREEMAN.

Chen was doing his year-end tax planning and trying to decide whether to buy a $19,000 computer system or one that costs $24,000.

He wanted advice on the tax deductions for both of these systems to help him make up his mind.

“The situation with instant asset write-off at the moment is unclear,” I told him.

“As the law currently stands, any asset that costs more than $1000 must be depreciated. In the case of a computer system this is based on the useful life of computers, which is four years and you can either depreciate using the relevant rate based on that or using the pooling system, which we talked about previously.

“Let me explain the background to the current impasse. In the budget of May 2023 the government announced that it would temporarily increase the threshold for the instant asset write-off to $20,000 for the year from July 1 2023 to June 30 2024. 

“Legislation was introduced into parliament, but it has not yet passed. On March 27 the Senate amended the bill, which had passed the House of Representatives, to increase the figure from $20,000 to $30,000 and to widen the class of small businesses eligible to claim. 

On May 15, the House of Representatives disagreed with the Senate amendments and returned it to the Senate. On May 16, the Senate rejected the bill again and insisted on the amendments, which it had previously proposed.

“In addition to this situation, in the budget the government proposed that there be a $20,000 instant asset write-off threshold for the 2025 financial year. This has not been debated yet, but it may be better to leave your purchase until July as there is a year for them to reach agreement regardless of what happens to the 2024 instant asset write-off threshold.”

Chen said: “So you’re telling me that at the beginning of June we don’t know how much we can write off in the current financial year?”

I told Chen that was exactly right. 

“I am really disappointed that the House of Representatives and the Senate cannot reach agreement on this important matter,” I said.

“I am further concerned about the impact that it is having on all small businesses in Australia. Small businesses make up such a large section of the economy and it is particularly disappointing that this has happened when the economy is in such a bad state, people are hurting and small businesses are struggling, with many going under.

“Notwithstanding this, you need to make a decision concerning your computer system. If you decide to proceed with the more expensive system it is unlikely that you will be able to do anything other than depreciate it as the dispute is around whether the figure is $20,000 or more. 

“It seems unlikely that any figure above $20,000 will be legislated at this time. However, if you buy the less expensive system the instant asset write-off threshold is really important to you.

“It may be preferable to purchase the less-expensive system after June 30 2024 and hopefully the legislators can get their act together earlier so it is clear what you can claim. 

“Another potential option is to buy it now and as we should have an answer a few days before June 30 that will give you time to put in place another tax plan and minimise your tax in some other way. This situation is far from ideal and doesn’t give any small business owner time to make proper decisions.”

Chen said he’d buy the cheaper system now and gamble that the legislation will be passed this financial year.

If you need any help with the depreciation situation or any other small business matter contact the expert team at Gail Freeman & Co on 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au

Disclaimer
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser. Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.