Small business capital allowances

Abstract

On 1 July 2001 Australia introduced a new concessional small business entities (SBE) depreciation regime in Subdiv 328-D of the Income Tax Assessment Act 1997 (Cth) (ITAA1997). Many changes have been made to the regime with the recent reforms to Subdiv 328-D providing a very generous $20,000 depreciating asset write-off as well as higher pool depreciation.1 This highlights the increasing politicalisation of Australia’s tax system and appears out of alignment with past Commonwealth governments’ calls for small business simplification2 and the current Liberal Coalition government’s focus on innovation. Turnbull sought for Australia “to be a culture, a national culture of innovation, of risk-taking, because as we do that, we grow the whole ecosystem of innovation right across the economy.”3 However, under the concessions, a relatively small number of larger small businesses obtain the vast majority of the tax benefits. In this context, this article examines the current depreciation regime provisions in Australia. This article first looks at how the current provisions relating to small business depreciation concessions have developed. This is followed by an analysis of Australia’s small business depreciation rules in Subdiv 328-D of the ITAA 1997 and the small restructure rollover relief in Subdiv 328-G. The article also analyses the costs and benefits of special small business depreciation and suggests a better way to encourage innovation for small business formation.