Small business tax measures, NALI changes enter Parliament

The government introduced the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 into the House of Representatives yesterday, which contains measures for small business and changes to the non-arm’s length expense rules.

$20,000 instant asset write-off measure

Schedule 1 of the bill amends the Income Tax (Transitional Provisions) Act 1997 to increase the instant asset write-off threshold to $20,000 until 30 June 2024.

Under the measure, 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, enabling small businesses to instantly write off multiple assets.

Assets costing $20,000 or more can be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.

CPA Australia senior policy manager Gavan Ord said while the government’s $20,000, one-year instant write-off was a positive measure, it would fail to make up the loss of the temporary full expensing program which ended at 30 June.

The temporary full expensing program enabled qualified businesses to deduct the cost of eligible depreciating assets first held and used between 6 October 2020 and 30 June 2023.

Mr Ord previously told sister title Accountants Daily that the $20,000 instant asset write-off should also be made permanent.

Small Business Energy Incentive

The bill also introduces the Small Business Energy Incentive which enables businesses with aggregated annual turnover of less than $50 million to have access to a bonus 20 per cent tax deduction for eligible assets supporting electrification and more efficient use of energy.

The new tax incentive applies from 1 July this year until 30 June 2024. Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000.

Assistant Treasurer and Minister for Financial Services Stephen Jones said the new incentive would help small and medium businesses make investments like electrifying their heating and cooling systems, upgrading to more efficient fridges and installing batteries and heat pumps.

“This incentive helps ensure these businesses share in the benefits and opportunities of the energy transition that's now underway,” said Mr Jones.

The Institute of Public Accountants previously criticised the tight time frame for the measure as not ideal for accountants trying to maximise the benefits to clients.

“What is not understood is the time and effort that needs to go into understanding the eligibility criteria before the incentive evaporates due to its limited shelf life,” said IPA general manager for technical policy Tony Greco.

“This initiative requires taxpayers to prove additional eligibility criteria over and above normal substantiation requirements.”

Changes to the non-arm’s length expense rules

The bill also contains amendments to the non-arm’s length expense rules which have been controversial for parts of the superannuation industry.

Under the proposed amendments, the non-arm’s length expense rules will not apply to large APRA funds while SMSFs and small APRA funds will be subject to a two times multiple formula where they incur a non-arm’s length expense (NALE) of a general nature.

The amendments were designed to address stakeholder concerns about the impact of the non-arm’s length expense provisions introduced back in 2019 with minor breaches likely to result in excessive penalties.

The SMSF Association said the two times multiple is an improvement from the original provisions which would have resulted in a lower general fund expense potentially tainting all of an SMSF’s income as non-arm’s length income.

However, SMSF Association chief executive Peter Burgess said the new provisions abandon the long-held principle that any tax must be underpinned by a level playing field.

Mr Burgess said the provisions in the bill will still leave SMSF trustees with a heavy compliance burden and there is still uncertainty surrounding how the NALE provisions will interact with the long-established CGT provisions.

“The ATO’s recently published draft tax determination on this matter is just a further illustration of the complexity and, many would argue, inequities of the NALE provisions,” he said.

“The release of a subsequent ATO contribution ruling and safe harbour guidelines has meant this risk, and the broader risks associated with NALE are now so insignificant, and the likely outcomes so innocuous, that such a complex and costly legislative response is not justified. There remains a strong argument that the 2019 NALE changes should be repealed altogether.”