19th April, 2018

Federal Budget 2018: The $20,000 question the government needs to answer

One of the great unanswered questions, for small businesses at least, is will the government keep the $20,000 instant asset write-off in this federal budget?

Last year the government gave the popular scheme a stay of execution. It’s safe until 30 June 2018 – but there’s no guarantee after tax time.

So, what’s all the fuss about?

What instant asset write-off means

The instant asset write-off scheme lets businesses with less than $10 million in annual turnover to write-off certain depreciating assets immediately. There’s no waiting for depreciation to kick in over several years.

Some types of assets small businesses could get under the scheme include:

  • IT hardware such as computers, printers, scanners, photocopiers
  • Office or shop fittings and furniture
  • Work vehicles, like a new ute
  • Sheds or containers for storing equipment
  • Tools and machinery
  • Plant and equipment

This isn’t a full list of items that fit the scheme, but the assets do need to be under $20,000 in value.

Small businesses often struggle with cash flow and can’t easily buy new assets, so this is a huge positive. And those assets boost productivity.

Last October, then Small Business Minister Michael McCormack revealed that almost 300,000 small businesses had taken advantage of the scheme.

How the scheme works

Last year, the scheme was estimated to cost the government $650 million over the forward estimates (next four financial years). The $950 million initial cost would then switch into profit as the scheme was theoretically paid back.

If the government were to extend the scheme, the ‘payback period’ for the government would also be pushed back .

From the 17/18 federal budget revenue papers

Simply saying the government was losing money on the scheme doesn’t paint the whole picture.

If small businesses could justify the expense of buying more assets, they bought more. We’ll get a better idea of exactly how much more during the budget.

These assets were, more often than not, bought from Australian suppliers. So, the money was in the pockets of Australian businesses – not government coffers.

The new laptops, spruced shop fitouts and tools helped businesses kick their goals and make more money. This meant a higher tax take for the government.

This ‘multiplier effect’, as it’s called, is tricky to measure.

But the government has some idea of the scheme’s success, as it now has about two years of data to sift through.

If Treasury gives the thumbs up, then the scheme goes on.

But if it’s just too expensive, the government can limit the balance sheet loss on the scheme to $650 million.

That’s the $20,000 question that could change a scheme that, according to word on the street, has been a great success.

So, what should small businesses do when the policy is up in the air?

Is it time to buy assets like crazy?

The scheme isn’t confirmed for the next financial year – the policy may well run out on 1 July this year.

Should you get in while the going’s good?

Avoid buying assets willy-nilly – focus on those assets you need regardless. If you’re in the market for a second ute to add to your fleet, maybe now’s the time.

The value of the asset doesn’t come back to you immediately – it’s just written off the taxable income of your business.

It’s best to talk through any new asset purchase with your business advisor, as it can have a big impact on your bottom line.

If you’re already in the market for a new asset, go for it instead of waiting for the 8 May this year to see if the government will expand the scheme.