Small Business Asset Incentives 2024 & 2025 – What You Need To Know

As expected, the last sitting of Federal Parliament produced a last-minute dash to finalise tax legislation before the end of one financial year and the beginning of a new one. We take a look at what the final wash-up has brought in terms of how this will impact the 2024 financial year, and what to plan for in 2025.

What you need to know

• The Instant Asset Write Off 2024
• The Instant Asset Write Off 2025
• The Small Business Energy Incentive

The Instant Asset Write Off – 2024

After the expiration of the Temporary Full Expensing measures for the majority of taxpayers at the end of 2023, those who qualify as Small Business Entities (SBEs) (aggregated turnover of less than $10 million based on projected current year or previous actual year figures) would revert to the pre-existing rules. That is, the Instant Asset Write Off for assets less than $1,000 GST exclusive and SBE Pooling of all assets over $1,000, collectively known as the Small Business Simplified Depreciation Rules.

Legislation has now been passed to increase the Instant Asset Write Off (IAWO) Threshold to $20,000 for the 2024 financial year, and to also increase the Low Value Pool Threshold to $20,000 (also previously set to revert to $1,000).

As a refresher, if the entity qualifies as an SBE, it will receive an immediate deduction for the cost of an asset that is first used (or installed ready for use) for a taxable purpose in 2024 where the cost of the asset (excluding GST) is less than $20,000. The threshold is applied on an asset-by-asset basis, meaning that assets purchased at the same time, but which are distinguishable as separate assets e.g. computers, will be treated as individual assets and each subject to the same $20,000 cost limit for applying the full depreciation deduction in 2024. This also applies the purchase of second-hand assets, but will exclude assets subject to a depreciating asset lease or capital works.

All assets that do not qualify for the IAWO will be added to the SBE General Pool and depreciated at a flat rate of 15% in the first year, and 30% in all subsequent years, based on the total balance of the pool.

It should be noted that the IAWO cannot be applied separately to other assets exceeding the threshold. The IAWO and SBE Pooling rules must be used together if a business opts in to the Small Business Simplified Depreciation Rules.

The Instant Asset Write Off – 2025

In the 2024-25 Federal Budget, the Government announced an extension to the increased Instant Asset Write Off threshold of $20,000 to 30 June 2025, consistent with the proposed changes for 2024 as they stood at the time.

The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 is currently before Parliament to enact this change but has not yet been passed. If the Bill does not pass, the IAWO will once again revert back to its originally legislated threshold of $1,000. We will keep you advised on the progress of this Bill.

The Small Business Energy Incentive – The 2024 hidden tax deduction

In the 2023-24 Federal Budget the Government announced that it would introduce a small business energy incentive that would provide bonus deductions of 20% to small and medium business entities for qualifying expenditure on assets that are considered more energy efficient. Unfortunately this measure didn’t pass Parliament until late June 2024, but with no extension to the period during which the scheme would operate, being 1 July 2023 to 30 June 2024.

Whilst the incentive period is now over, giving businesses no opportunity to consider whether to take advantage of the scheme now that it is officially law, there is still potential for businesses to access the bonus deduction based on assets that they may have purchased during the year, which inadvertently qualify for the incentive.

The Small Business Energy Incentive allows businesses with aggregated annual turnover of less than $50 million to access a bonus deduction equal to 20% of the cost of eligible depreciating assets or improvements to existing assets that support electrification or more efficient energy use. The maximum bonus deduction is $20,000 (i.e. up to $100,000 of qualifying expenditure). Note that the turnover requirements to access this incentive are more generous than the Small Business Simplified Depreciation Rules (i.e. the IAWO and SBE Pooling), allowing larger organisations to also qualify under these rules.

To be eligible for the bonus deduction the following basic conditions need to be met:

• The expenditure must be tax deductible under another provision of the tax law
• The asset must be first used or installed ready for use for a taxable purpose between 1 July 2023 and 30 June 2024; and
• The asset must be first used or installed ready for use for any purpose between 1 July 2023 and 30 June 2024 (i.e. an asset cannot have been held prior to 1 July 2023 and only commence being used for a taxable purpose for the first time after 1 July 2023).

The types of assets that are suggested would qualify for the incentive, and eligible for the bonus deduction include assets that:

• Use electricity and there is a new reasonably comparable asset available in the market that uses a fossil fuel (gas/petrol); or
• Use electricity and is more energy efficient than the asset it is replacing; or
• If it is not a replacement asset, it uses electricity and is more energy efficient than a new reasonably comparable asset available in the market; or
• It is an energy storage, time-shifting or monitoring asset or an asset that improves the energy efficiency of another asset.

Scenarios where we see this qualifying for businesses include:

• Replacement of existing gas-powered heating or cooking appliances with electric reverse cycle heating and/or electric and induction cooktops
• Replacement of diesel engines or generators with electric motor components as an improvement to existing depreciating assets
• Upgrading of existing appliances or equipment to more energy efficient models based on their star rating, which could extend even as far as newer computing equipment and mobile phones (subject to the above conditions)
• Purchases of new appliances or equipment where the energy efficiency rating is at least higher than the lowest comparable asset, e.g. purchase of a new refrigerator with a four-star rating where a similar option to purchase a three-star rated appliance was an option at the time of purchase.
• Installing time-shifting devices that allow appliances to operate at off-peak times, or to be switched off entirely during hours they aren’t required to operate.

Please note that electric vehicles are specially excluded from these measures, as well as assets that can also use a fossil fuel power source, or assets that have a predominant purpose of generating electricity, such as solar panels.

The ATO indicates that you can use any reasonable basis to determine if an asset is more energy efficient than another asset. For example, you can refer to the electricity consumption information provided by the manufacturer to compare assets or visit https://calculator.energyrating.gov.au/ to assess the energy efficiency star rating to compare different models. The ATO has also indicated that it will generally accept any reasonable assumption that a new asset will be more energy efficient than a very old asset (for example, one manufactured before energy efficiency ratings were in place).

We recommend that businesses review their asset acquisitions during the last financial year to confirm whether they may be eligible for the bonus deduction under these measures.

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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.