In a joint submission to the Treasury from Chartered Accountants Australia and New Zealand (CA ANZ), CPA Australia, the Institute of Public Accountants, Tax & Super Australia (TSA), the Law Council of Australia and The Tax Institute, the industry bodies said the law should be amended to give small businesses the same flexibility as larger businesses when calculating depreciation on their assets.
Under the current version of the Treasury Laws Amendment (2020 Measures No. 6) Act 2020, businesses are given flexibility to choose whether to apply the new full expensing of depreciating assets measure on an asset-by-asset basis.
However, the accounting bodies noted that this flexibility is not available to small businesses. This means they are required to choose whether to fully expense their general small business pool balances on 30 June 2021 and cannot choose not to write off the pool balance.
As a result, the accounting bodies believe the current legislation will lead to worse tax outcomes for small businesses as it fails to address the pooling issue.
TSA tax counsel John Jeffreys said the exclusion of entities that use small business depreciation could have negative consequences for these businesses.
“Many small businesses use this simpler form of deprecation. They will be concerned that by purchasing an asset and being forced to immediately write that asset off, the entity will be pushed into tax losses,” Mr Jeffreys said.
“When this occurs, this can result in the small-business entity having to pay added tax in future years.”
Mr Jeffreys said this is particularly the case where a business is being run, for example, through a trust.
“If the trust is pushed into losses when it acquires an asset, it can mean the trust’s beneficiaries lose the use of the tax-free threshold. When the tax-free threshold is lost for a year, it cannot be regained and therefore there is a permanent tax loss,” he said.
“As it stands, there is no choice in this matter. The business is forced to claim the full expensing of the asset.”