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Nearly two-thirds of small businesses took advantage of the $150,000 instant asset write-off threshold last year, according to new data.
Debtor finance lender ScotPac has revealed that 63 per cent of small and medium-sized enterprises (SMEs) utilised the instant asset write-off scheme in the 2023 financial year ahead of its expiry.
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During the COVID-19 pandemic, the federal government increased the threshold for tax deductions for asset purchases to support small businesses over the period. The threshold had previously been $30,000, but was expanded to eligible assets costing up to $150,000 that were first used or installed for use between March 2020 and 30 June 2023. The government later removed the cap entirely by introducing temporary full expensing.
However, as of 1 July 2023, the instant asset write-off threshold returned to pre-COVID-19 levels.
Given the change, many small businesses rushed to take advantage of the $150,000 cap before it expired, according to SME lender ScotPac.
In its most recent SME Growth Index Report, for example, the lender found that 63 per cent of SMEs used the write-off in FY23.
Three-quarters of small businesses in NSW/ACT took advantage of the write-off before it expired, the report found, compared with just 54 per cent of Western Australian SMEs.
SMEs with declining or flat growth were the biggest users of the scheme, with 68 per cent purchasing eligible assets, compared with 59 per cent of growth SMEs.
However, it found that the average amount spent by SMEs was less than what was available to write off – at around $91,500.
Speaking of the findings, ScotPac chief executive Jon Sutton said the larger write-off had been a major factor in SME decision making on capital expenditure in recent years.
“There is no doubt the instant asset write-off scheme has achieved its objective of encouraging SMEs to invest in assets to help grow their business,” Mr Sutton said.
“In raw numbers, hundreds of thousands of SMEs were able to claim tax relief worth billions of dollars for assets purchased in 2023–24.
“When you consider the rising costs faced by all businesses in that period, including the cost of critical assets, the Instant Asset Write-off scheme has provided a great boost for SMEs.”
Brokers well placed to assist with new instant asset write-off scheme
While the $150,000 threshold has been removed, Mr Sutton added that brokers were well placed to help SMEs take advantage of the FY24 write-off.
As of 1 July 2023, a $20,000 cap applies on an asset-by-asset basis, while assets valued at more than $20,000 (which cannot be immediately deducted) can be placed into the small-business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.
Mr Sutton said while there was understandable disappointment that the temporary full expensing measure had ceased, the current IAWO scheme still provided incentives for SMEs to invest in capital.
“Average capital expenditure levels for SMEs are continuing to grow,” Mr Sutton said.
“Many SMEs are using asset finance and other working capital solutions as leverage to purchase new equipment and take advantage of the tax concessions still on offer.
“While recent changes to the scheme have removed the immediate tax benefit for larger items, the $20,000 per asset cap still provides opportunities for SMEs looking to expand or upgrade their asset base.”
Indeed, he noted that it was not well known that the write-off can be applied multiple times and that brokers were well placed to help SMEs utilise this scheme.
“Regulatory change creates opportunities for experts like brokers to help their clients understand their suite of options when it comes to acquiring assets,” he told The Adviser.
“We know that one in six SMEs are unsure of how to fund new business investment. Many more may be unaware that the revised $20,000 Instant Asset Write-off Scheme cap applies on an asset-by-asset basis.”
Mr Sutton encouraged SME owners, CFOs, and procurement managers planning to invest in new assets to talk to their broker.
“ScotPac has a great track record of partnering with brokers who are committed to providing asset funding solutions for their clients, especially at times of change when their expertise is needed the most,” he added.
[Related: Australia’s leading asset finance broker reveals top tips for success]
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