This year will be unique due to the application of the Immediate Asset Write Off for Small Business Entities (SBE), who are using the ATO simplified tax concessions.

The importance of tax planning has never been greater.

An SBE is defined as one which, during the year, carries on a business and one or both of the following applies:

  • A business was carried in the previous income year and the aggregated (total) turnover for that year was less than $10 million; and/or
  • Aggregated turnover for the current year is likely to be less than $10 million

The outcome for businesses using the SBE concessions is that all plant and equipment will be fully deducted on 30 June 2021.No tax to pay sounds great at first, but there should be consideration given to what happens next year, or the year after. Tax planning is crucial.

The SBE depreciation pool will be reduced to nil on 30 June 2021, and new assets purchased between July 2021 to June 2022 will also receive a full tax deduction. 

Some businesses will receive a significant deduction for depreciation, large enough in many cases that there will be no tax due after the end of the financial year even if no planning is put in place.

No tax to pay sounds great at first, but there should be consideration given to what happens next year, or the year after.

Tax issues could arise during the 2022 or 2023 financial years where there is significantly less or no depreciation tax deduction available.

EXAMPLE 1:

A new tractor purchased before 30 June 2021 for $500,000 will be fully depreciated for tax purposes.
Normally, the deduction would provide approximately 80% of depreciation over the first five years of ownership.

In order to counteract the uniquely large depreciation deduction this year, there is an opportunity to reverse the conventional thinking about tax planning and press the reset button on some historical tax planning strategies:

  • Bring forward grain, wool, or livestock sales
  • Less or no prepaid expenditure before 30 June
  • Defer major asset purchases to July or later
  • Withdraw Farm Management Deposits (FMDs)

Other frequently asked questions

New or used?

  • The immediate deduction applies to both new and used machinery, both are treated in the same manner for the immediate write-off.Unwinding of prepayments and deferring income in prior year tax planning could help to ease cashflow, and free up cash locked away in FMDs.

press the reset button?

  • Unwinding of prepayments and deferring income in prior-year tax planning could help to ease cashflow, and free up cash locked away in Farm Management Deposits (FMDs).

fully deductible next year?

  • ​The immediate write-off applies for plant and machinery purchased between July 2021 to June 2022, meaning forward planning for the next two financial years in addition to this year.

RSM help with your EOFY tax planning

At RSM, we’ve been your local regional accountants for longer than you think. Make a call to your local RSM office to discuss any questions you may have on tax planning today.