Budget 2023: Asset write-offs and amnesty, a tale of two measures

Instant asset write-offs

An instant asset write-off (IAWO) is a tax incentive designed to simplify how businesses claim deductions on the value of their assets. IAWO’s are also intended to incentivise businesses to purchase assets and therefore stimulate the economy. 

By using an IAWO, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use. The less attractive alternative is to treat the asset as depreciating over the course of the life of the asset. Therefore, the commercial effect of the IAWO reduces the tax bills of eligible businesses and frees up cashflow.

Small businesses with an aggregate turnover of less than $10 million (Small Businesses), have a simplified process and may claim an IAWO depending on:
1.    when the asset was purchased;
2.    when the asset was first used or installed ready for use; and
3.    whether the cost of the asset is less than the threshold.

History of IAWO’s

Small Businesses and their advisors may be familiar with the attractive IAWO rules introduced in 2015: when the threshold value of assets under which Small Businesses could claim a deduction was increased from $1,000 to $20,000, if the asset was first used or installed ready for use between 1 July 2016 to 28 January 2019.  This threshold amount was subsequently increased to $30,000 by 2019. In response to COVID-19, the Federal Government lifted the threshold to an unprecedented $150,000 to cover assets first used or installed ready for use between 12 March 2020 to 30 June 2021. Unfortunately for Small Businesses, if they did not purchase their asset by 31 December 2020, they were unable to claim this generous threshold. 

Proposed changes to IAWO’s

Against the backdrop of uncertain economic conditions, the Federal Government is once again making provisions for IAWOs. As part of its 2023-24 Budget, the Federal Government has announced that from 1 July 2023:
1.    Small Businesses will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024;
2.    the $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets; and
3.    assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% for each income year after that.

It is important to note that this change is yet to be passed into law, however, we do not expect any barriers to the passage of legislation. 

The re-introduction of the IAWO scheme will be a welcome change for Small Businesses who have not been able to apply an IAWO to assets purchased since 31 December 2020. Small Businesses and their advisors should keep in mind the strict limitation period of the latest IAWO rules, in particular that they will only apply to assets first used or installed ready for use after 1 July 2023. To avoid the risk that a Small Business claims an IAWO and the ATO determines that the relevant asset(s) were made ready for use before 1 July 2023, Small Businesses should consider purchasing their eligible assets in the new financial year; or where an asset must be purchased before the end of the financial year for business reasons, then the delivery or receipt of the asset should occur in the new financial year to ensure eligibility for the amended IAWO regime.

While some Small Business owners may be disappointed that the new IAWO’s threshold of $20,000  is significantly lower that the threshold of $150,000 which applied during COVID-19, we note that the IAWO threshold was typically $20,000 from 2015. 

Accordingly, Small Businesses and their advisors may now begin considering what assets they may require that are valued at up to $20,000 (such as tools, computer equipment, office furnishings, machinery and other equipment) and the appropriate timing of such acquisitions. 

Lodgement penalty amnesty program

As an additional measure in the 2023-24 Budget, the Federal Government announced a lodgement penalty amnesty program for Small Businesses to encourage them to re-engage with the tax system and ensure they are meeting all current and outstanding tax obligations. 

Under this program, if a Small Business did not lodge their income tax and business activity statements when they were originally due from 1 December 2019 to 28 February 2022, they will not be subject to a failure to lodge penalty if they lodge returns for these periods between 1 June 2023 and 31 December 2023 (Amnesty Program). Any failure to lodge penalty applying to the late lodgement will be automatically remitted and no action is required to request a remission. The Amnesty Program does not apply to privately owned groups, or individuals controlling over $5 million of net wealth. 

The Amnesty Program is a win for Small Businesses who fell behind during COVID-19 on their tax lodgements and are concerned about failure to lodge penalties. For Small Businesses who have not yet lodged all their income tax and business activity statements for the period between 1 December 2019 to 28 February 2022, we strongly recommended they take advantage of this limited opportunity to avoid penalties and lodge their statements as soon as the window opens on 1 June 2023 and, in any event, before it closes on 31 December 2023. 

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of topics, such as:
1.    Increasing Access To Small Business Tax Concessions 
2.    Federal Budget For SMEs: Advising Small Businesses On Skills, Training And Digital Adoption Incentives 
3.    Federal Court Reminds Tax Agents of their Obligations 
4.    Why You Need A Partnership Agreement For Your Business 

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