The latest edition of the SME Growth Index from non-bank business lender ScotPac reveals that 63 per cent of Australian SMEs took advantage of the uncapped Instant Asset Write-Off Scheme in the last financial year before the revised limit of $20,000 per asset recently took effect.
The Instant Asset Write-Off (IAWO) Scheme was instituted over a decade ago for eligible businesses to claim an immediate tax deduction for the purchase of various assets, up to a specified threshold. The Federal Government increased the IAWO threshold from $30,000 to $150,000 and removed the cap entirely with the introduction of a temporary full expensing scheme during the COVID-19 pandemic to make it easier for small businesses to benefit from asset purchases.
With the Albanese Government committing to a revised IAWO threshold of $20,000 per eligible asset for 12 months from 1 July 2023, SMEs ramped up their use of the scheme in the lead-up. The SME Growth Index report noted that the average amount spent by SMEs that used the IAWO scheme in FY23 was $91,500. In particular, SMEs with declining or flat growth took advantage of the scheme the most with 68 per cent purchasing eligible assets, compared with 59 per cent of growth SMEs.
ScotPac CEO, Jon Sutton, said the IAWO scheme has been a major factor in SME decision-making on capital expenditure in recent years.
“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,” Sutton said. “In raw numbers, hundreds of thousands of SMEs were able to claim tax relief worth billions of dollars for assets purchased in 2023-24. When you consider the rising costs faced by all businesses in that period, including the cost of critical assets, the Instant Asset Write-off scheme has provided a great boost for SMEs.”
Under the current IAWO threshold, a $20,000 cap applies on an asset-by-asset basis. Assets valued at more than $20,000 are placed into the small business depreciation pool and depreciated over several years.
Sutton added that while there was understandable disappointment that the temporary full expensing measure had ceased, the current IAWO scheme still provided incentives for SMEs to invest in capital.
“Average capital expenditure levels for SMEs are continuing to grow,” he noted. “Many SMEs are using Asset Finance and other working capital solutions as leverage to purchase new equipment and take advantage of the tax concessions still on offer. 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.”
