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New tax sweetener could see small biz lose out to bigger rivals

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New tax sweetener could see small biz lose out to bigger rivals

Josh Frydenberg

The expanded instant asset write-off was broadly welcomed by the small business community, but some tax experts think medium businesses could get more out of the changes.

After passing both houses last week, the bill to increase the instant asset write-off threshold to $30,000 and expand its eligibility to businesses with turnover of $50 million received royal assent in recent days. This was a budgetary measure from the Morrison government. 

The changes have been largely touted as a win for small business, but for senior manager at accounting network RSM Tracey Dunn, it looks to be a bigger win for medium-sized businesses.  

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Essentially, medium businesses will have less conditions to meet than small businesses to qualify for the concession.

In technical terms, medium-sized businesses will only need to pass the aggregated turnover test and be carrying on a business in order to access the instant asset write-off, despite small businesses also needing to elect to use small business simplified depreciation under subdivision 328-D of the Income Tax Assessment Act 1997.

“A small business entity that does not elect to use simplified depreciation may be excluded from accessing the instant asset write-off both under the small business and medium-sized business definitions,” Ms Dunn said.

“A more beneficial change for small business owners would perhaps have been to extend the instant asset write-off to all small business entities irrespective of whether they elected to use simplified depreciation for small business or not.” 

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In addition, there’s no requirement for medium-sized businesses to meet what is known as the “base rate entity” criteria, which is currently required to access lower corporate tax rates. 

“At first glance, it appears we may have a situation where a company that earns predominantly passive income, but has aggregated turnover of less than $50 million, may be able to access the instant asset write-off,” Ms Dunn said.

“So this means that a company with aggregated turnover of less than $50 million that is carrying on a business, but has more than 80 per cent BRE passive income, may be eligible for the instant asset write-off but not the lower company tax rate. I’m not sure this was the intention of the government. 

“This takes us back to the issue the government had when they first introduced the reduction to the corporate tax rate that companies who only earned passive income may be deemed to be carrying on a business.”

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New tax sweetener could see small biz lose out to bigger rivals
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