Bills Digest No. 116,
2017–18
PDF version [234KB]
Liz Wakerly
Economics Section
15
June 2018
Contents
Purpose of the Bill
Structure of the Bill
Background
Committee consideration
Policy position of non-government
parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human
Rights
Key issues and provisions
Date introduced: 24
May 2018
House: House of
Representatives
Portfolio: Treasury
Commencement: Sections 1–3 commence on Royal Assent; Schedule 1 commences on the first 1
January, 1 April, 1 July or 1 October after Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the Federal
Register of Legislation website.
All hyperlinks in this Bills Digest are correct as at
June 2018.
Purpose of the Bill
The purpose of the Treasury Laws Amendment (Accelerated
Depreciation for Small Business Entities) Bill 2018 (the Bill) is to amend the Income Tax
Assessment Act 1997 (ITAA 1997) and the Income Tax
(Transitional Provisions) Act 1997 (Transitional Provisions Act)
to extend by 12 months to 30 June 2019 the period during which small business
entities can access expanded accelerated depreciation rules.
Structure
of the Bill
Schedule 1 to the Bill amends the tax law to extend access
to accelerated depreciation for small business entities by 12 months from 30
June 2018 to 30 June 2019, where the asset value is less than $20,000 rather
than $1,000. The amendments extend the availability of an immediate deduction
for:
- depreciating
assets
- amounts
included in the second element of a depreciating asset’s cost and
- general
small business pools.
Background
In the 2018–19 Budget, the Government announced that it
would extend the 2015–16 Budget measure Growing Jobs and Small Business –
expanding accelerated depreciation for small businesses by a further 12
months to 30 June 2019 for businesses with an aggregated annual turnover of
less than $10 million.[1]
This extension follows an earlier 12 month extension to
the measure announced in the 2017–18 Budget.[2]
Background to the 2017–18 Budget measure is contained in the Bills
Digest for the Treasury Laws Amendment (Accelerated Depreciation for Small
Business Entities) Bill 2017.[3]
In October 2017, the then Minister for Small Business,
Michael McCormack, announced that approximately 300,000 small businesses had
taken advantage of the instant asset write-off (according to 2015–16 tax office
data).[4]
In 2015–16, the number of claims increased by 50,550 and the average amount
claimed increased by $4,056 to $9,000.[5]
In a media release announcing the introduction of the
current legislation, the Treasurer, Scott Morrison, claimed that ‘around 3.3
million businesses across the country with an annual turnover of less than $10
million are eligible to access the $20,000 instant asset write-off’.[6]
The Government favours a temporary extension over a permanent measure to induce
a behavioural response from small business: small businesses are encouraged to
bring forward capital investment before the threshold reverts back to $1,000.[7]
How does the instant asset
write-off work?
The instant asset write-off, available under the
simplified depreciation rules, bypasses the general depreciation rules that
require business assets to be depreciated at a rate in line with their actual
lifespan (which means deductions for large purchases can take years to flow
through to a business’s bank accounts). A business can choose to use the
simplified depreciation rules if aggregated turnover is less than $10 million
from 1 July 2016 onwards or $2 million for previous income years.[8]
Under these rules, a small business can:
immediately write-off most depreciating assets that cost less than
$20,000 each, that were bought and used, or installed ready for use, from
7.30pm (AEST) on 12 May 2015 until 30 June 2018
- pool most other depreciating assets that cost $20,000 or more in a
small business asset pool and claim
- a 15% deduction in the first year
- a 30% deduction each year after the first year and
- write-off the balance of the small business pool at the end of an
income year if the balance, before applying any other depreciation deduction,
is less than $20,000.[9]
As noted by Thomson Reuters, ‘while the extension of the
write-off will be welcomed, [Small and Medium-sized Enterprises] (SMEs) of
course need to have the cash-flow to enable them to spend the $20,000 in the first
place’.[10]
In practice, most small businesses fund asset purchases
with finance that would require repayments and incur interest payments over
several years. The repayment commitments could continue long after the refund
under the instant asset write-off had been received.[11]
An asset must be first bought and used, or installed
ready-for-use in the year that the deduction is claimed.[12]
The entire purchase price of the asset must be less than the $20,000 cap to
qualify for the instant asset write-off scheme.[13]
For the purposes of the simplified depreciation rules, the purchase of a new
asset and the trade in of another asset are considered to be separate
transactions.[14]
The depreciation deduction is limited to the percentage the asset is used for
business or other taxable purposes (for example, managing investments).[15]
Assets valued at $20,000 or more can continue to be placed
into the small business asset pool and depreciated at 15 per cent in the first
year and 30 per cent each income year thereafter. The balance of the small
business pool can be written off at the end of an income year if the balance is
less than $20,000.[16]
Committee
consideration
The Bill was referred to the Senate Economics Legislation
Committee (the Committee) for inquiry and report by 18 June 2018. The Committee
met in private session on 29 May 2018 and issued a report stating that ‘by
unanimous decision ... there are no substantive matters that require examination’.[17]
Neither the Senate Standing Committee for the Scrutiny of
Bills nor the Parliamentary Joint Committee on Human Rights had commented on
the Bill at the time of writing.
Policy
position of non-government parties/independents
The Australian Labor Party (ALP) supports the extension of
the instant asset write-off for small business.[18]
In the lead up to the 2016 Federal Election, the
Australian Greens supported the $20,000 instant asset write-off.[19]
Position of
major interest groups
According to the Explanatory Memorandum, there is strong
stakeholder support for extending the instant asset write-off from the Australian
Chamber of Commerce and Industry (ACCI), Council of Small Business Australia (COSBOA),
Master Builders Australia, Chamber of Commerce and Industry Queensland, and
Restaurant & Catering Australia.[20]
In its pre-budget
submission, COSBOA called for the Government to extend and ‘enhance’ the
$20,000 instant asset write-off.[21]
Chief Executive Peter Strong has noted some frustration at having to lobby for
an extension of the scheme every year.[22]
KPMG welcomed the extension of the $20,000 instant asset
write-off but noted that the concessions had not been widely used, reflecting
either poor understanding or a perception that they are too complex and that
the costs of compliance do not justify the potential benefits. There was
concern that a 12-month extension may not be sufficient to allow for the
concessions to be better understood.[23]
CPA Australia Head of Policy, Paul Drum, has argued for
making the policy permanent.[24]
Australian Small Business and Family Enterprise Ombudsman,
Kate Carnell, has called for a higher value asset threshold of up to $100,000,
arguing that ‘$20,000 just doesn’t buy a piece of farming equipment or a new
piece of equipment for a manufacturing plant’.[25]
In its pre-budget
submission, the ACCI called for an extension of the instant asset write-down
to lift business investment.[26]
In a pre-budget poll, seven out of ten small and
medium-sized businesses supported an extension of the instant asset write-off.[27]
Financial
implications
According to the Explanatory Memorandum, the financial
implications over the forward estimates period are as shown in Table 1.
Table 1: financial impact of accelerated depreciation
arrangements for small business entities as proposed by the Bill
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
Total |
|
nil |
not zero, but rounded to zero |
-$550m |
$50m |
$150m |
-$350m |
Source: Explanatory
Memorandum, Treasury Laws Amendment (Accelerated Depreciation for Small
Business Entities) Bill 2018, p. 3.
The Explanatory Memorandum argues that there will be a
decrease in compliance costs ‘because it is an existing measure and there are
no new requirements associated with the extension for 12 months’.[28]
The estimated net cost to revenue is $350 million over the forward estimates. The
estimated annual regulatory saving (calculated over ten years) for businesses
is $2.2 million.[29]
This compares with an estimated net cost to revenue of
$650 million over the forward estimates and an estimated annual regulatory
saving (calculated over ten years) of $2.4 million when the measure was first extended
in 2017 (see Table 2).[30]
Table 2: financial impact of accelerated depreciation
arrangements under the Treasury Laws Amendment (Accelerated Depreciation for
Small Business Entities) Act 2017
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
Total |
nil |
not zero, but rounded to zero |
-$950m |
$50m |
$250m |
|
-$650m |
Source: Explanatory
Memorandum, Treasury Laws Amendment (Accelerated Depreciation for Small
Business Entities) Bill 2017, p. 3.
It is not clear how these numbers are derived.
Statement
of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[31]
Key issues
and provisions
The Transitional Provisions Act currently provides
that the accelerated depreciation provisions under the ITAA 1997 apply
to a depreciating asset as if references to the $1,000 limit were read as
references to a $20,000 limit, where the asset is acquired at or after 2015
budget time[32]
and is first used, or first installed ready for use, on or before 30 June 2018.[33]
Item 10 of Schedule 1 to the Bill extends the
period to which the $20,000 threshold applies, so that it applies to assets
first acquired at or after 7.30pm, by legal time in the Australian Capital
Territory on 12 May 2015 and first used or installed ready for use on or before
30 June 2019.[34]
Item 11 of Schedule 1 to the Bill similarly extends
from 30 June 2018 to 30 June 2019 the period in which the increased threshold
applies for amounts included in the second element of the cost of depreciating
assets (for example, an amount spent on improving or transporting a
depreciating asset).[35]
A small business entity can deduct the balance of its
small business pool at the end of an income year if the balance of the pool is
less than a threshold amount.[36]
This is usually $1,000; however the Transitional Provisions Act states
that the threshold is $20,000 in relation to deductions for an increased
access year.[37]
Item 9 of Schedule 1 to the Bill amends the definition of increased
access year (to which the higher $20,000 threshold applies) to capture
an income year which ends on or after 12 May 2015 and on or before 30 June
2019.[38]
Amending this definition also extends the period for which
the operation of the lock-out rule is suspended.[39]
Under the lock-out rule, a taxpayer who chooses to apply these simplified
arrangements in one income year and does not choose it in a later year cannot
choose to use the simplified arrangements for a period of five years. The
continuing suspension means that businesses which have previously opted out of
the simplified depreciation rules are not prevented from re-entering the
simplified depreciation system and accessing the higher instant asset write-off
threshold.
A number of consequential amendments are made to the ITAA
1997 and the Transitional Provisions Act to update relevant guidance
material to reflect the substantive amendments made by the Bill (items 1–8).[40]
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. Australian
Government, Budget
measures: budget paper no. 2: 2018–19, p. 20.
[2]. The
2017–18 Budget measure was implemented by the Treasury Laws
Amendment (Accelerated Depreciation For Small Business Entities) Act 2017
(Cth).
[3]. P
Pyburne, Treasury
Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2017,
Bills digest, 104, 2016–17, Parliamentary Library, Canberra, 31 May 2017.
[4]. M
McCormack (Minister for Small Business), 300,000
small businesses benefit from instant asset write-off, media release,
14 October 2017.
[5]. Ibid.
[6]. S
Morrison (Treasurer), Backing
small business – extending the $20,000 instant asset write-off, media
release, 24 May 2018. Note that the Australian Bureau of Statistics records 2.2
million business with turnover of less than $10 million as operating at the end
of June 2017 (Source: Australian Bureau of Statistics (ABS), Counts of
Australian Businesses, including Entries and Exits, June 2013 to June 2017,
cat. no. 8165.0, ABS, Canberra, 2018).
[7]. Explanatory
Memorandum, Treasury Laws Amendment (Accelerated Depreciation for Small
Business Entities) Bill 2018, p. 17.
[8]. Australian
Taxation Office (ATO), ‘Simpler
depreciation for small business’, ATO website, last modified 7 June 2018.
[9]. Ibid.
[10]. Chartered
Accountants Australia and Thomson Reuters, Federal
Budget Tax Bulletin 2018–2019, 8 May 2018, p. 17.
[11]. N
Prior, ‘Don’t
be a tool when it comes to instant kick’, The West Australian, 28
May 2018, p. 3.
[12]. Australian
Taxation Office (ATO), ‘Buying
and using assets’, ATO website, last modified 10 October 2017.
[13]. If
a small business is registered for goods and services tax (GST), the instant
asset-write off threshold is $20,000 exclusive of any GST; if a small business
is not registered for GST, the instant asset-write off threshold is $20,000
inclusive of any GST (ATO, ‘Simpler
depreciation for small business’, op. cit.).
[14]. ATO,
, op. cit.
[15]. ATO,
‘Simpler
depreciation for small business’, op. cit.
[16]. S
Morrison, ‘Second
reading speech: Treasury Laws Amendment (Accelerated Depreciation for Small
Business Entities) Bill 2018’, House of Representatives, Debates (proof),
24 May 2018, p. 2.
[17]. Senate
Economics Legislation Committee, Treasury
Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018
[Provisions]—Report, 29 May 2018.
[18]. J
Chalmers (Shadow Minister for Finance), Address
to the Australian Chamber of Commerce and Industry, Sydney, speech, 17 May
2018, p. 1.
[19]. Australian
Greens, Levelling
the playing field: standing up for small business, Australian Greens
policy document, Election 2016.
[20]. Explanatory
Memorandum, Treasury Laws Amendment (Accelerated Depreciation for Small
Business Entities) Bill 2018, p. 23.
[21]. Council
of Small Business Australia, ‘Budget
priorities statement 2018–19’, Treasury website, 2018, p. 7.
[22]. C
Waters, ‘Asset
write-offs on budget wish list’, The Sydney Morning Herald, 7 May
2018, p. 24.
[23]. KPMG,
KPMG
Budget 2018 response – a budget of few surprises, media release, 10 May
2018. A previous survey of small and medium-sized businesses by KPMG found that
two-thirds had not taken advantage of the instant asset write-off. Most of
those that had used it said they bought technology and other new equipment.
[24]. C
Busby, ‘Federal
Budget: 20k instant asset tax write-off extended’, Business Builders
website, 9 May 2018.
[25]. C
Waters, ‘Asset
write-offs on budget wish list’, The Sydney Morning Herald, 7 May
2018, p. 24.
[26]. Australian
Chamber of Commerce and Industry, ‘Pre-budget
submission’, 15 December 2017, p. 6.
[27]. C
Heaney, ‘Companies
want asset write-off to remain’, The Courier Mail, 26 April 2018, p.
45.
[28]. Explanatory
Memorandum, Treasury Laws Amendment (Accelerated Depreciation for Small Business
Entities) Bill 2018, p. 21.
[29]. Ibid.,
p. 22.
[30]. Explanatory
Memorandum, Treasury Laws Amendment (Accelerated Depreciation for Small
Business Entities) Bill 2017, p. 3.
[31]. The
Statement of Compatibility with Human Rights can be found at page 13 of the Explanatory
Memorandum to the Bill.
[32]. Under
subsection 328-180(1) of the Transitional Provisions Act, 2015
budget time is defined as 7:30 pm, by legal time in the Australian
Capital Territory, on 12 May 2015.
[33]. Transitional
Provisions Act, subsection 328-180(4).
[34]. Item
10 amends paragraph 328-180(4)(b) of the Transitional Provisions Act.
[35]. Item
11 amends paragraph 328-180(5)(b) of the Transitional Provisions Act.
[36]. ITAA
1997, section 328-210.
[37]. Transitional
Provisions Act, subsection 328-180(6).
[38]. The
definition of increased access year is at subsection 328-180(1)
of the Transitional Provisions Act.
[39]. Transitional
Provisions Act, subsections 328-180(2)–(3). From 7.30pm on 12 May 2015 to
30 June 2018, the ‘lock-out’ rules under subsection 328-175(10) of the ITAA
1997 have been suspended to allow small businesses that have chosen to
stop using the simplified depreciation rules to take advantage of the increase
in the instant asset write-off threshold. Before this period, the ‘lock-out’
rules prevented small businesses from re-entering the simplified depreciation
system for five years if they had opted out (ATO, ‘If
you no longer use simplified depreciation’, ATO website, last modified 10
October 2017).
[40]. Items
1 to 7 amend the notes to paragraphs 328-180(1)(b), (2)(a) and (3)(a), note
to subsection 328-210(1) and notes to subsections 328-250(1), (4) and
328-253(4) of the ITAA 1997. Item 8 amends the heading to section
328-180 of the Transitional Provisions Act.
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