The EOFY 2022 tax concessions for small businesses were initially implemented in 2020, but several of them have been extended to 30 June 2023 to support small businesses who want to invest in or upgrade equipment, machinery and tech.
Tax depreciation incentives
Several options are given to business owners, each with their own advantages.
Eligibility depends on the accounting and depreciation methods being used in your organisation, so it’s best to consult with your accountant to arrive at an approach that will benefit you at tax time.
Only one tax concession can be applied to each asset. If your company—or the asset you would like to make a claim for—is eligible for several incentives, applicability would follow the hierarchy below:
- Temporary full expensing (TFE)
- Instant asset write-off (IAWO)
- General depreciation rules (Division 40)
Temporary full expensing (TFE)
Just like the IAWO, temporary full expensing lets you immediately deduct the cost of eligible depreciating assets (business portion only).
The original TFE measure applied to all assets of an eligible entity. But subsequent amendments gave companies the right to opt-out of TFE and the IAWO (subject to certain conditions) and to choose which capital allowance rules work best for their company.
- SMEs with an aggregate turnover of less than $50 million
- Larger companies with aggregate turnover of less than $5 billion
- Small businesses applying simplified depreciation rules
- An asset being used in Australia (for business use only)
- The asset must have been first held/used/installed and ready for use—for a taxable purpose—between 7:30 pm (AEDT) 6 October 2020 and 30 June 2023
- Deduct the full cost (business portion) of new, eligible, depreciating assets
- SMEs may also deduct the cost of eligible second-hand depreciating assets
- Can be applied to the cost of improvements made to eligible depreciating assets (even those acquired before 6 October 2020)
Instant asset write-off (IAWO)
Instead of depreciating a business asset over several years, the instant asset write-off allows companies to write-off (depreciate) the full cost of an asset in the very first year. You get a tax deduction in your upcoming tax return instead of receiving the deduction over a number of years.
- Businesses with an annual turnover of up to $500 million
- New or second-hand assets used for business purposes that cost up to $150,000
- Eligible taxpayers that purchase an eligible business asset between 7:30 pm 6 October 2020 and 30 June 2023 can receive a deduction for the full value of the asset in the income year that it was bought and installed, ready for use.
- Passenger vehicles have a ‘car limit’ of $59,136 (income year 2020-21) and $60,733 (income year 2021-22)
- Covers multiple assets as long as each of them fall below the cost threshold
- Invest in new assets to improve your business and deduct the entire value of them immediately
- The IAWO allows for an easy, one-off depreciation process
Learn more about the IAWO here.
Lower company tax rates for base rate entities
Companies that fall under the “base rate entity” category (described below) will enjoy discounted tax rates.
Base rate entities are:
- Those with an aggregated turnover of less than $50 million
- Cases where 80% (or less) of assessable income is passive income (i.e. dividends, rent, interest, royalties, net capital gains, etc.)
- Lower tax rate of 25% for base rate entities in income year 2021-2022
Small business income tax offset
For eligible small businesses with low turnover, the government is offering an increased small business income tax offset. Also known as the unincorporated small business tax discount, the small business income tax offset can reduce the tax you pay by up to $1,000 each year. The offset is based on the proportion of tax payable on your business income.
- Small business sole traders
- Small businesses with a share of net small business income from a partnership or trust
- Businesses with a turnover of less than $5 million
- Higher rate of offset: 16% (2021-22) from 13% in 2020-21
To find out more about these tax incentives and measures, visit the ATO website.
Make sure you have a chat with your accountant before making any tax-related decisions. While we specialise in finance, your accountant is best-placed to inform your tax strategy.
EOFY gives you a fresh start
EOFY is the perfect time to secure assets for your business while taking advantage of the tax incentives outlined above.
Looking for some extra cash to purchase your assets without draining cash flow? Valiant offers a wide range of asset financing solutions to suit your individual needs. See your free, tailored quotes for asset and equipment finance in less than two minutes.
Emilio is a Business Analyst here at Valiant. He draws on his passion, insight and understanding of small business to help our talented team of lending experts better understand their customers' needs.