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Approximately 63% of Australian SMEs capitalised on the uncapped Instant Asset Write-Off (IAWO) Scheme in the last financial year, according to a report from ScotPac, with average expenditure amounting to $91,500.
The IAWO scheme was introduced over a decade ago to enable eligible businesses to claim an immediate tax deduction for the purchase of various assets up to a specified threshold. In response to the challenges posed by COVID-19, the federal government had raised the IAWO threshold from £30,000 to £150,000, eliminating the cap entirely through temporary full expensing.
But after the government announced a new threshold of $20,000 per asset beginning July 1, 2023, ScotPac’s SME Growth Index Report noted that there had been a noticeable increase in SMEs utilising the scheme in the lead up to the change.
SMEs experiencing declining or stagnant growth were also found to be the primary users of the scheme, with 68% making purchases of eligible assets, compared to 59% of growing SMEs.
The report additionally showed regional variations in the usage of the scheme, with 75% of SMEs in New South Wales and the Australian Capital Territory making use of it, as opposed to just 54% in Western Australia.
“There is no doubt the Instant Asset Write-off Scheme has achieved its objective of encouraging SMEs to invest in assets to help grow their business,” ScotPac CEO Jon Sutton (pictured above) told Australian Fintech. “In raw numbers, hundreds of thousands of SMEs were able to claim tax relief worth billions of dollars for assets purchased in 2023-24.”
Sutton went on to note that the current IAWO scheme continues to offer incentives for SMEs to invest in capital, even with the end of the temporary full expensing measure.
Average capital expenditure levels for SMEs are on an upward trajectory, according to Sutton, adding that many SMEs are leveraging Asset Finance and other working capital solutions to capitalise on available tax concessions.
“While recent changes to the scheme have removed the immediate tax benefit for larger items, the $20,000 per asset cap still provides opportunities for SMEs looking to expand or upgrade their asset base,” he said.
