Medium businesses may stand to benefit more from the new expanded instant asset write-off than their smaller counterparts who are required to elect to use simplified depreciation to access the write-off.
New instant asset write-off could favour medium businesses more
Last week, the government rushed the passage of its expanded instant asset write-off, increasing the threshold to $30,000 and expanding the measure to medium-sized businesses with a turnover of less than $50 million.
Speaking to Accountants Daily, RSM senior manager Tracey Dunn said that, upon closer viewing of the amendments, 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 business 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.”
Further, Ms Dunn noted that there was no requirement for a medium-sized business to meet the base rate entity criteria that is currently required to access the lower corporate tax rate.
“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.”
Is $50 million the new $10 million?
The Tax Institute’s senior tax counsel, Professor Robert Deutsch, believes the expansion of eligibility of the instant asset write-off to businesses with a turnover of less than $50 million may mean the definition of a small business is changing.
“Another magic number seems to be the $50 million turnover threshold. Not only can companies with less than $50 million apply the lower 25 per cent company tax rate when it becomes available in 2021–22, they are now also able to claim the instant asset write-off concession,” Professor Deutsch said.
“Will $50 million become the new $10 million for small business tax concessions? $50 million could become the new magic number to define a small business for tax purposes.”
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