The Enhanced Instant Asset Write-Off: No Added Benefits for R&D Entities

The Australian Government made the Instant Asset Write-Off (IAWO) program better for businesses. From 1 July 2023 to 30 June 2024, small businesses with earnings under $10 million can deduct up to $20,000 for each eligible asset. And here’s the best part: these changes won’t impact R&D Tax Claims, so you can possibly get the benefits of both.

Enhanced Support for Small Businesses

Although the Temporary Full Expensing (TFE) treatment of new asset purchases won’t continue, the Australian Government is improving the Instant Asset Write-Off (IAWO) program to support businesses. From 1 July 2023 to 30 June 2024, small businesses with an aggregated turnover under $10 million can deduct up to $20,000 for each qualifying asset. Assets valued at $20,000 or more can still be depreciated through the small business simplified depreciation pool. 

Notably, these improvements won’t increase R&D Tax Claims. The Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023, introduced on September 13, 2023, includes Schedule 1, which focuses on enhancing the Instant Asset Write-Off under Section 328-D. 

R&D Tax Incentive and Deductions

Regarding R&D tax incentives and deductions for depreciating assets used in research and development, calculations follow Section 355-305 and Section 355-310 of the ITAA 1997.  These sections mandate that the notional deduction should be computed using Division 40 of the ITAA 1997, with specific adjustments as necessary. 

As a result, businesses using the improved Instant Asset Write-Off can’t notionally deduct asset expenses under the R&D Tax Incentive (R&DTI). When a company deducts asset costs under Section 328-D, they are not applying Division 40 and can’t claim a notional R&D deduction under Subsection 355-310. 

Additionally, when an asset has been used for R&D purposes the IAWO under Subdivision 328-D is not available, and the asset will revert to Division 40 treatment. If an asset has not been used in R&D during the income year, businesses may still choose not to apply the IAWO to retain notional deductions for the asset’s decline in value in a future income year in which it’s used for R&D activities. 

Summary

• If a qualifying asset has not been used in R&D during the 2023-24 income year then a business may apply the Instant Asset Write-off, but this expenditure is not notionally deductible under the R&DTI. 
• If an asset has been used in R&D during the 2023-24 income year then section 328-175(9) mandates Division 40 treatment to calculate the decline in value, and the IAWO is not available. This decline in value is notionally deductible under the R&DTI. 
• If an asset has not been used in R&D during the 2023-24 income year but will be used in R&D during a future income year, then a business may choose not to apply the Instant Asset Write-Off so that the asset’s future decline in value is notionally deductible under the R&DTI.