The federal government has introduced a new instant asset write-off scheme of $20,000, designed to boost cash flow for eligible small businesses in Australia.
However, it falls significantly short of the $150,000 limit that businesses could previously use to write off assets during the pandemic.
This has raised concerns about the potential for continued growth in asset finance, given the substantial reduction in the maximum allowance.
“It makes sense that the government have done this given we’re trying to reduce inflation however I feel that for a lot of business owners it is going to mean some of their goals may be one step further away,” said Brad Donnelly (pictured above left), broker at Green Finance Group.
Approved by the Senate on Thursday, the bill delivers on the promises set out in the 2022-23 Budget.
Small businesses with aggregated annual turnover of less than $10 million will be able to immediately deduct eligible assets costing less than $20,000, from 1 July 2023 until 30 June 2024.
The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.
“Small businesses are the engine room of Australia’s economy, which is why these new measures are so critical,” said Housing Minister Julie Collins and Financial Services Minister Stephen Jones in a joint statement.
“This is targeted, responsible support, to help Australia’s small businesses continue to grow.”
Some in the industry have welcomed the news, such as Beau Bertoli (pictured above centre), co-founder and chief revenue officer at non-bank SME lender Prospa.
“In light of the challenging past few years for small businesses, the Bill introduced to Parliament is likely to be well-received by many and should provide much-needed relief, offering support during these tough times,” Bertoli said.
“The instant asset write-off provisions continue to be a valuable incentive for small businesses, encouraging them to invest in new equipment, tools, and assets – an effective way to reduce costs, improve cash flow, and pave the way for growth.”
Terry Wong (pictured above right), director of Fundex Capital and an excellence awardee for the 2023 Australian Mortgage Awards Young Guns category, agreed and said the introduction of the Bill was “nothing short of a game changer” for small business clients.
“The $20,000 Instant Asset Write-Off – it's like having a tax-saving superhero in your corner,” Wong said. “It injects a healthy dose of cash flow, making important investments, like motor vehicles for business use, way more affordable.”
“And that affordability? It's not just good news for businesses; it's a crucial driving force behind our economic growth.”
While all this may be true, the latest scheme also brings the instant asset write-off back to a level not seen since 2018.
After increasing the scheme to $30,000 in 2019, the government significantly raised the limit to $150,000 in March 2020.
While the uptake was initially slow in its first year with many SMEs unaware of the increase, the scheme quickly grew in popularity throughout the pandemic.
As interest rates rose with each RBA cash rate announcement, the instant asset write-off grew increasingly valuable throughout the 2022-23 financial year and with news that the scheme was ending on June 30, business owners rushed to get in before the deadline.
This was reflected in the results of many lenders.
Amid a challenging mortgage market, Pepper Money saw asset business overtake mortgages for the first time.
Released in August, the non-bank lender’s asset finance originations were up 19% on the first half of 2022 and up 37% on the second half.
Commonwealth Bank (CBA) also experienced a massive lift in its asset finance space, with electric vehicle financing up 235% over the financial year.
According to CBA’s financial year results, computer equipment (up 43%), cars (up 30%), heavy trucks (up 27%), trailers (up 26%), forklifts (up 17%) and total utility vans (up 15%) have all recorded significant growth.
“It’s clear businesses were motivated to upgrade their eligible vehicles and equipment to take advantage of the federal government’s instant asset write-off scheme before June 30,” said CBA general manager of asset finance Chris Moldrich.
While the increase in asset finance was astronomical, Donnelly said demand was even higher than the numbers suggest given supply was affected by supply chain issues.
“I think given the shortage we’ve had in vehicles over the last few years it has made it hard for some of our small business customers to take full advantage of the previous instant asset write off,’ Donnelly said.
“The reduction from $150,000 to $20,000 will definitely hurt. However, it is better than removing it completely.”
Donnelly said the instant asset write off meant that customers had been able to grow their business’ while reducing their taxable income without impacting their borrowing capacity for personal lending by too much.
“This has meant that as a broker we’ve still been able to support our business customers to grow and achieve their personal borrowing goals,” said Donnelly, who is also nominated for the Adelaide Bank Young Gun of the Year at this year’s Australian Mortgage Awards (AMAs).
“By this reducing to $20,000, we will likely have some customers that will have to choose between expanding their business and purchasing new property.”
Still, Wong said it was better to look on the bright side.
“Beyond the immediate cash flow boost and the alleviation of compliance expenses, it serves as a tax-saving mechanism, effectively lowering taxable income and consequently reducing overall tax liabilities. In essence, it's a financial win-win,” Wong said.
Do you think asset finance can still grow despite the reduced instant asset write-off scheme? Comment below.
