IPA warns of ‘misspent’ asset write-off by small business

Small businesses may be misconstruing the original incentive behind the $20,000 instant asset write-off and shouldn’t be buying assets simply for tax purposes, cautions the Institute of Public Accountants.

Institute of Public Accountants general manager of technical policy, Tony Greco, said small businesses may be interpreting the write-off as $20,000 in tax relief.

“It’s not as if the government has given them $20,000. Sometimes it gets misspent, and they don’t fully understand how it works,” he told Public Accountant.

“They think, ‘Well I’m getting $20,000 in tax relief’. No, they’re not. They’re just able to accelerate the write-off of the purchases and assets that helps with cash flow, but it’s still coming out of their pockets.”

Mr Greco’s comments are in response to remarks from Sequel CFO chief executive David Boyar, who questioned the usefulness of the instant asset write-off, referring to the incentive as “very overrated”.

He said the instant asset write-off is “a gadget benefit”, where businesses walk into retailers and buy gadgets with the write-off.

Further, Mr Boyar noted that any well-run business will have a cash flow forecast that has a certain amount of capital expenditure budgeted.

“If you spend $20,000 cash now, you get tax deductions – so 30 per cent of that now instead of over three or four years. Most businesses, unless they plan for it, don’t have that cash flow to go with that, and just blow on fixed assets,” Mr Boyar said.

“It’s great for retailers. I don’t know how good it is for small business.”

A recent KPMG report measuring sentiment from mid-market firms regarding certain issues before the federal budget found that 69 per cent hadn’t utilised the increased instant asset write-off threshold.

Twenty per cent said they invested their savings into new equipment or technology, while 5 per cent said they invested the savings on improvements to the premises.

Another 5 per cent said they hadn’t invested the savings back into the business.

Mr Boyar said what he’d rather see the budget instead address actual pain points of business owners revolving around keeping up with PAYG and super payments as they grow.

“Why not allow pre-approved funding for tax payments while businesses are growing? Why not give them a hiatus on some of the payments that they need to make while the business is growing?” the CEO suggested.

“Because that’s what actually causes them to fail, not a lack of fancy new computers.”

3 thoughts on “IPA warns of ‘misspent’ asset write-off by small business

  • April 29, 2018 at 10:33 pm

    Totally agree., well said

  • May 12, 2018 at 5:05 pm

    I agree. Some client’s become tunnel visioned by the relief and think that investing in new assets will magically translate into an improved bottom-line. There are other factors at play. I agree that helping with cash flow would be a much better outcome for a lot of small businesses.

  • May 14, 2018 at 2:30 pm

    Yes, the benefit of it is just to pull in the depreciation charge of later income years.
    By discounting that improved cash flow (by cutting profit tax payment in the years), it is only talking about several hundred dollars of benefit to the tax payer.

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