Budget 2021: Massive asset write-off and loss carry-back schemes extended for SMEs

budget overview papers

Treasurer Josh Frydenberg and Minister for Finance Simon Birmingham with the budget. Source: AAP/Mick Tsikas.

Small and medium businesses will be able to immediately deduct the full cost of all new asset purchases for another 12 months, as well as access the small business loss carry-back scheme, under measures included in tonight’s budget.

First announced in the 2020 federal budget, the temporary full-expensing measure allows businesses with up to $5 billion in aggregated annual turnover or total income to immediately deduct the full cost of eligible depreciable assets of any value.

The measure, which greatly expanded the previous $20,000 instant asset write-off scheme, was due to expire on June 30, 2022.

It will now continue for another 12 months, giving Australian businesses the ability to use it for all eligible assets acquired from 7.30pm on October 6, 2020, and first used or installed by June 30, 2023.

From July 1, 2023, normal depreciation arrangements will apply. However, businesses will be able to take advantage of a separate policy, included in the government’s digital economy strategy, which will allow them to self-assess intangible depreciating assets, such as patents, registered designs, copyrights and in-house software.

As previously reported by SmartCompany, this change in how intangible assets are treated will apply to assets acquired from July 1, 2023.

In the budget papers, the government said the 12-month extension to the physical asset write-off scheme will “encourage businesses to make further investments, including in projects requiring longer planning times, and continue to support economic recovery in 2022-23”.

The extension of the measure will cost the budget $17.9 billion over the forward estimates and $3.4 billion in the medium term.

In his budget speech, Treasurer Josh Frydenberg will say the extension means “a tradie can buy a new ute, a farmer a new harvester and a manufacturer expand their production line”.

“A sustainable recovery requires a strong private sector,” he will say, noting that the high threshold for the depreciation scheme means 99% of Australian businesses can use it.

Loss carry-back extended

The temporary loss-carry back scheme has similarly been extended for another 12 months, in a move that will be welcomed by the many small businesses that are still in recovery following the pandemic.

This policy, which was also announced in last year’s federal budget, allows incorporated businesses to utilise tax losses to offset previously taxed profits.

It means when eligible companies lodge their 2022-23 tax return, they will be able to offset previously taxed profits from as far back as the 2018-19 income year to receive a tax rebate.

The value of the rebate is limited, as the amount carried back cannot be more than the earlier taxed profits.

Companies that opt not to use this measure can still continue to carry losses forward.

As with the asset write-off, this scheme is also available to businesses with aggregated turnover of up to $5 billion and will now expire in June 2023.

In the budget papers, the government said the loss carry-back scheme works alongside the asset write-off scheme to encourage business investment “by providing eligible companies earlier access to the tax value of losses generated by full expensing deductions”.

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