The Government has announced additional measures to encourage small businesses to invest in certain assets and to help with cash flow. While these measures are a positive for smaller taxpayers, they are significantly less generous than existing incentives that are due to cease.
Immediate deduction for depreciable assets up to $20,000
The Government has announced a limited extension to the instant asset write-off threshold to $20,000, from 1 July 2023 to 30 June 2024. Instant asset write-off rules allow for an immediate deduction for the cost of a depreciating asset for small business entities.
The write-off applies to small business entities with an aggregated turnover of less than $10million. To be eligible, the asset must be first used or installed ready for use between 1 July 2023 and 30 June 2024. The measure applies only to assets costing less than $20,000. The $20,000 threshold will apply on a per asset basis, allowing small businesses to write-off multiple assets.
These proposed rules are significantly less liberal than the previous more expansive temporary full expensing measures that applied to practically all business regardless of size from 6 October 2020 until 30 June 2023. That being said, smaller taxpayers will still be able to obtain the benefits of the immediate tax deduction and the flow-on cash savings.
Small Business Energy Incentive
The Government will provide an additional 20% deduction for eligible depreciating assets supporting electrification and more efficient use of energy by businesses with aggregated annual turnover less than $50million. The additional deduction will apply to assets first used or installed ready for use or eligible upgrades made between 1 July 2023 and 30 June 2024. The boost is subject to an expenditure cap of $100,000, equating to a maximum tax saving of $5,000 under this incentive.
Eligibility and exclusions will be subject to further consultation. However, some assets have already been earmarked as being eligible, including electric heating or cooling systems, heat pumps, energy efficient fridges, induction cooktops, and demand management assets such as batteries or thermal energy storage. Assets that are to be expressly excluded from the incentive include electric vehicles, renewable electricity generation assets, capital works and assets that are not connected to the electricity grid or use fossil fuels.
The measure provides a limited incentive for those small to medium businesses looking to reduce their carbon footprint.
Changes to PAYG instalment system
Small businesses, sole traders and investors will be given temporary tax instalment relief to assist with additional cash flow. The measures include a change in the GDP uplift factor used for PAYG and GST instalments from 12% to 6%, commencing from the 30 September 2023 quarter and throughout the 2024 income year.