Tax & Super Australia (TSA) and fellow professional bodies have recommended that Treasury amend legislation to ensure small- to medium-sized enterprises (SMEs) have the same flexibility as their larger counterparts to opt out of full expensing measures regardless of the method they use to calculate depreciation.
TSA first raised concerns in December 2020 that Treasury Laws Amendment (2020 Measures No. 6) Bill 2020 did not contain any provisions for entities that use small business depreciation to opt out of the full expensing measure.
It noted that amendments (contained in Schedule 1) only applied in relation to those businesses that use Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) to calculate their depreciation. There are no amendments made in respect of the many small businesses that use Subdivision 328-D to calculate their depreciation. This subdivision enables a simpler form of depreciation by permitting entities to use a general small business pool.
At the time, TSA tax counsel John Jeffreys told media that 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. When this occurs, this can result in the small businesses entity having to pay added tax in future years.”
“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.”
“As it stands, there is no choice in this matter. The business is forced to claim the full expensing of the asset,” Mr Jeffreys said.
TSA and the joint bodies — Chartered Accountants Australia and New Zealand, CPA Australia, Institute of Public Accountants, Law Council of Australia and The Tax Institute — have now made a submission to Treasury on the issue.
As part of the submission, the joint bodies stated:
“The policy intent was clearly to give flexibility to all businesses. However, the translation of that policy into law seems not to have covered the field completely, by failing to address the SBE pooling issue.”
“The joint bodies seek that the law be amended to provide SME taxpayers with the same flexibility as larger businesses, and to ensure that larger businesses are not treated more favourably than SMEs, or those that are still subject to the pooling rules in Subdiv 328-D after making a choice to exit Subdiv 328-D. Flexibility is sought for SMEs for both the FEDA (Full Expensing of Depreciating Assets) measure and the BBI (Backing Business Investment) incentive.”
The policy intent was clearly to give flexibility to all businesses. However, the translation of that policy into law seems not to have covered the field completely, by failing to address the SME pooling issue.”
For further comment, please contact TSA senior tax counsel John Jeffreys: Mobile: 0416 250 461
Tax & Super Australia (TSA) is a not-for-profit organisation that provides practical tax, super and accounting information for about 3,600 members and a broader tax community of more than 15,000 people.