The National Tax and Accountants’ Association (NTAA) has written to Treasurer Josh Frydenberg to ask for a retrospective legislative change to remove an unintended burden from taxpayers stemming from the increase in the instant asset write-off threshold to $150,000.
The government announced in March it is increasing the instant asset write-off from $30,000 to $150,000, with the aim to encourage more businesses to buy big-ticket items such as cars and equipment. However, once the coronavirus struck Aussie shores, the government increased and expanded the write-off as part of its COVID-19 economic response.
But the NTAA has now warned that the change in the threshold has resulted in some anomalous outcomes for taxpayers forced to claim an outright deduction because their general pool balance is less than the increased threshold.
The body is now asking that taxpayers with a general pool balance less than the IWA threshold for the year ended 30 June 2020, be offered the choice to claim an outright deduction for the balance, or, alternatively, that they can continue depreciating the general pool at 30 per cent.
In an example of the anomaly given by NTAA, the body said that a sole trader will be worse off over five years by just over $3,400 as result of the Response Package Act requiring that an outright deduction for a general pool balance of less than $150,000 be claimed in the year ended 30 June 2020.
The NTAA said: “The taxpayer in question, a sole trader truck driver, was required to claim a deduction for a general pool balance of approximately $107,000 in the 2020 income year. Had the IAW threshold remained at $30,000, this deduction of $107,000 would have been spread over a number of income years.
“Looking at the 2020 income year in isolation, the taxpayer appears to have achieved a good result with no tax liability for the year. Indeed, had the Response Package Act not been enacted into law, he would have instead had a tax liability of approximately $10,300.
“However, over a five-year period (i.e. from 2020 to 2024), assuming consistent revenue and expenses, the picture is very different. This is because the same taxpayer has a total tax liability over this period approximating to an extra $3,400 over five years as a result of a legislative change in the 2020 income year that they could never have reasonably anticipated. This completely wipes out and makes very illusory the $10,300 tax ‘saving’ in the 2020 income year.”
According to the body, this scenario is commonplace among many SBE taxpayers, where they had no willingness or financial capacity to acquire any depreciating assets from 12 March 2020 onwards.
However, as the NTAA explained, due to the lifting of the IAW threshold from $30,000 to $150,000, these SBEs are forced to claim a significant tax deduction in respect to their general pool balance in the 2020 income year, in lieu of deductions which would have otherwise been spread over a number of income years.
“Accordingly, it is the NTAA’s recommendation that in the interests of equity and fairness, and so as to ensure that the original intent of the Response Package Act is not subverted by unintended consequences, that where a taxpayer has a general pool balance less than the IWA threshold for the year ended 30 June 2020, they have the choice to claim an outright deduction for the balance, or, alternatively, that they can continue depreciating the general pool at 30 per cent,” the NTAA concluded.