In 2020 the government introduced economic stimulus measures to help businesses recover from the impacts of COVID-19.
Included in these measures is the Temporary Full Expensing of Depreciating Assets.
In this article, we unpack the main features of the Temporary Full Expensing of Depreciating Assets:
#1 Businesses with an aggregated turnover of less than $5 billion are eligible to participate.
#2 Corporate tax entities who cannot meet the $5 billion aggregated turnover test may still be eligible under the alternative test.
#3 To be eligible for temporary full expensing, the depreciating asset must be:
– New or second hand (if a second-hand asset, aggregated turnover must be below $50 million).
– First held by you at or after 7.30 pm AEDT on 6 October 2020.
– First used or installed ready for use for a taxable purpose, between 7.30 pm AEDT on 6 October 2020 and 30 June 2022.
#4 Budget alert! – as part of the 2021-22 Budget, temporary full expensing is to be extended for another year (i.e to 30 June 2023) – this information has been released as part of the Budget and is not yet law.
#5 Excluded assets include:
– Assets allocated to a low-value pool or a software development pool.
– Certain primary production assets (some examples include water facilities, fencing, horticultural plants or fodder storage assets), unless you are a small business entity that chooses to use the simplified depreciation rules to these assets.
– Buildings and other capital works for which you can deduct amounts under Division 43.
– Assets that either:
* will never be located in Australia
* will not be used principally in Australia for the principal purpose of carrying on a business.
– Additional exclusions do apply for corporate entities who are eligible for temporary full expensing only through applying the alternative test.
#6 Businesses are able to immediately deduct the business portion of the cost of improvements to eligible depreciating assets (which includes assets acquired before 7.30 pm AEDT on 6 October 2020 that would otherwise qualify as eligible assets) if those costs are incurred between 7.30 pm AEDT on 6 October 2020 and 30 June 2022.
#7 An asset cost threshold does not apply (note, however, the cost excludes any GST credits to which the entity is entitled and is subject to the car depreciation cost limit).
#8 Opting-out – you can make the choice to opt-out of temporary full expensing for an income year on an asset-by-asset basis if you are not using the simplified depreciation rules.
If you choose to opt out, you can claim a deduction using other depreciation rules.
#9 If you are a small business that chooses to use the small business simplified depreciation rules, the temporary expensing rules will apply with some modifications.
#10 Balancing adjustments – where a balancing adjustment applies to the asset in the same year of purchase/installation, full expensing cannot apply (as the balancing adjustments provisions will apply instead).
#11 How is the benefit claimed? The depreciation deductions under the temporary full expensing measure will be claimed in the relevant entities tax return using the new labels as identified by the Australian Taxation Office (ATO).
Please contact us to find out more on how the Temporary Full Expensing measure will impact you and your business.
The team at EMspire Advisory are trusted, qualified chartered accountants and work closely with our clients to achieve the best possible outcomes. So to find out more and if you can benefit from these tax measures, please contact us!
Please note that this information is not specific and is general in nature and cannot be relied on as advice. Please contact us for advice specific to you and your circumstances.