Temporary Full Expensing Initiative

In response to Covid-19 and the impact the pandemic has had on business, the government has delivered a number of initiatives in an effort to ease the financial impacts being felt by industry. One of these such measures is the Temporary Full Expensing initiative which allows businesses to immediately deduct the cost of eligible depreciating assets subject to certain conditions. This initiative was due to end 30 June 2022, however legislation has since been passed to extend this initiative for another year to 30 June 2023.

This is a relatively simple measure, with little administrative duties that can provide significant tax and subsequent cash flow savings by enabling a taxpayer to deduct the balance of an eligible asset where this claim would ordinarily be realised over, perhaps, ten or twenty years.

So what are the eligibility requirements for the temporary full expensing initiative?

You may be eligible for temporary full expensing if you are one of the following:

• A business with an aggregated turnover of less than $5 billion.
• A corporate tax entity that meets the alternative income test.

For the 2020-21, 2021-22 and 2022-23 income years, an eligible entity can claim in its tax return a deduction for the business portion of the cost of:

Eligible new assets first held, first used or installed ready for use for a taxable purpose between 7:30pm AEDT on 6 October 2020 and 30 June 2023.

Eligible second-hand assets where both:

• The asset was first held, first used or installed ready for use for a taxable purpose between 7:30pm AEDT on 6 October and 30 June 2023.
• The eligible entity’s aggregated turnover is less than $50 million.

Improvements incurred between 7:30pm AEDT on 6 October 2020 and 30 June 2023 to:

• Eligible assets.
• Existing assets that would be eligible assets except that they are held before 7:30pm AEDT on 6 October 2020.

Eligible assets of small business entities using the simplified depreciation rules and the balance of their small business pool.

As per the above criteria, the immediate deduction of second-hand assets under the temporary full expensing measure is only available to entities with an aggregated turnover of less than $50 million where the $5 billion turnover threshold applies to the deduction for new assets. There is no maximum cap on the value of an asset that may be deducted under the initiative, however certain assets, such as those allocated to a low-value or software development pool and capital works are excluded from the definition of an ‘Eligible Asset’. It should also be noted that certain entities may be able to opt out of applying the temporary full expensing measures in their business.

Should you have any queries regarding this initiative and your eligibility, please contact our office on 7078 3505.

By Andrew Diamanti – Senior Accountant – Venture Private Advisory