SMEs may be on the receiving end of sellers trying to flog products by encouraging businesses to use the instant asset write-off, a CPA Australia employee has warned.
As part of its heavily COVID-influenced federal budget, the government is allowing businesses to write off the full value of assets acquired after Tuesday, 6 October, and first used by mid-2022.
But Gavan Ord, CPA Australia manager of business and investment policy, has acknowledged that while this incentive can help small businesses purchase new depreciable assets, it should only be used if it makes good business sense.
Warning that there are many traps to watch out for, Mr Ord revealed that there are multiple sellers promoting the scheme to spruik their products to businesses.
“Do not take advice on your eligibility from someone trying to sell you a product. Only take tax advice from a registered tax agent,” Mr Ord said.
He explained that small businesses need to ensure they know the rule, because, while the write-off applies to a wide range of assets, it does not apply to all assets or their uses.
“Consider the rules which apply to the instant asset write-off and whether purchasing the asset makes good business sense.
“If you are in any doubt whether you can and should acquire an asset using this incentive, seek advice from a registered tax agent.”
How it works
Under temporary full expensing, small-business entities with an aggregated turnover of less than $10 million are able to deduct the full cost of:
- eligible depreciating assets that are first held, and first used or installed ready for use for a taxable purpose between the 2020 budget time and 30 June 2022;
- the second element of cost of these assets and of existing eligible depreciating assets incurred between the 2020 budget time and 30 June 2022; and
- the balance of their general small business pool.
If an asset is not eligible for temporary full expensing because it was acquired before the 2020 budget time, the time by which the asset must be first used or installed ready for use to qualify for the enhanced instant asset write-off is extended until 30 June 2021.
The provisions that prevent small-business entities from accessing the simplified depreciation regime for five years if they opt out of the regime continue to be suspended for income years that include 30 June 2021 and 30 June 2022.
While acknowledging its benefits, Mr Ord encouraged businesses to think things through carefully before making a purchase.
CPA’s top tips for making the most of the instant asset write-off include:
- Make sure there is a strong business case for the purchase — do some calculations on your return on investment.
- If the asset is not needed for your business to grow or be more efficient, you probably don’t need it.
- If you are not confident in the outlook for your business, think twice before buying assets.
- Seek professional advice about whether you can or should buy a depreciable asset.