The Budget puts forward a number of measures aimed at supporting small businesses, including incentives for small businesses to save on energy bills, reduce time spent on tax compliance and re-engage with the tax system.
Instant asset write-off
Instant asset write-offs have an interesting history in the Australian tax landscape. From its origins in the 2015-16 Budget with a $20,000 asset threshold, the scheme was expanded over time to higher value assets and larger businesses, eventually being superseded by “temporary full expensing” for businesses with an aggregated turnover of less than $5 billion in the 2020-21 Budget as part of the Federal Government’s COVID stimulus efforts. The instant asset write-off in Division 328 remained in a dormant form, being reduced to $1,000 from 1 January 2021.
Temporary full expensing comes to an end on 30 June 2023.
In the 2023-24 Budget, the instant asset write-off returns in a much more modest form in line with its 2015 origins, with an asset threshold of $20,000 applicable from 1 July 2023 until 30 June 2024, available to small businesses with an aggregated annual turnover of less than $10 million.
Assets in excess of $20,000 can continue to be placed in a small business simplified depreciation pool, to be depreciated at 15% in the first income year and 30% in each subsequent year. The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will continue to be suspended until 30 June 2024.
The measure is expected to reduce tax revenue by $290 million over 5 years.
GDP adjustment factor
The Government has announced that it will set the gross domestic product (GDP) adjustment factor for pay as you go (PAYG) and goods and services tax (GST) instalments at 6% for the 2023–24 income year, a supposed reduction from the current 12% under the statutory formula.
The Budget papers state that this measure is intended to provide cashflow support to small businesses by reducing the amount of regular prepayments of tax, as the GDP adjustment factor is used to adjust instalment amounts to reflect any likely growth in income. However, the current GDP adjustment factor is in fact 2%, making this measure an increase instead of a decrease. We will seek to liaise with the Government to clarify their position on this measure.
The reduced GDP adjustment rate applies to small businesses and individuals who are eligible to use the relevant instalment methods (up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregate turnover for PAYG instalments) in respect of instalments that relate to the 2023-24 income year and are due after the enabling legislation receives Royal Assent.
Small business energy incentive
The Government will support small and medium businesses to save on energy bills through incentivising the electrification of assets and improvements to energy efficiency.
Small and medium businesses, with an aggregated annual turnover of less than $50 million, will be able to deduct an additional 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy. Up to $100,000 of total expenditure will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000.
Eligible assets will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. Eligible upgrades will also need to be made in this period.
Electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels are excluded from this measure.
Driving collaboration by reducing the time spent complying with tax obligations
The Budget includes certain measures to assist small businesses in complying with their tax obligations: see comments in the “Tax Compliance” section.
Lodgement penalty amnesty program
To encourage re-engagement with the tax system, small businesses with an aggregate turnover of less than $10 million will be able to remit failure-to-lodge penalties for outstanding tax statements that were originally due during the period from 1 December 2019 to 29 February 2022.
The amnesty will only apply to tax statements lodged in the period from 1 June 2023 to December 2023.
Digest what was (or wasn’t) in the Federal Budget, what that means, and whether we now anticipate significant tax reform.
