'Temporary full expensing' is an Australian Government tax incentive and one of the depreciation methods currently available to businesses.
Eligible businesses can fully deduct the cost of new and used eligible depreciating assets rather than depreciating them based on their effective life.
Businesses claim their deduction when lodging 2020–21, 2021–22, 2022-23 tax returns.
Eligible entities
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.
The rules for calculating aggregated turnover are the same as those used for the small business entity concessions. Your aggregated turnover may include the annual turnover of other business entities in addition to your own annual turnover.
Eligibility for temporary full expensing | Australian Taxation Office (ato.gov.au)
Eligible assets
To be eligible for temporary full expensing, the depreciating asset must be:
- new or second-hand (if it is a second-hand asset, your aggregated turnover is below $50 million)
- first held by you at or after 7.30pm AEDT on 6 October 2020
- first used or installed ready for use by you for a taxable purpose (such as a business purpose) between 7.30pm AEDT on 6 October 2020 and 30 June 2023.
Exclusions - Eligible assets don't include:
- assets allocated to a low-value pool or a software development pool
- certain primary production assets (water facilities, fencing, horticultural plants or fodder storage assets) that are primary production depreciating assets, unless you're a small business entity who chooses to use the simplified depreciation rules for these assets
- buildings and other capital works you can deduct amounts for under Division 43
- assets that either:
- - will never be located in Australia
- - won't be used principally in Australia for the principal purpose of carrying on a business.
If your business has an aggregated turnover of $50 million or more, you can't immediately deduct the cost of an eligible asset that is:
- a second-hand asset
- an asset you entered into a commitment to hold, construct or use before 7.30pm AEDT on 6 October 2020.
If you're applying the alternative income test, more exclusions apply.
If your asset is not eligible, or you have chosen not to use temporary full expensing for the asset for a particular income year, you may be able to use other depreciation provisions.
Eligibility for temporary full expensing | Australian Taxation Office (ato.gov.au)
Limits
There are no limits on the cost of eligible assets to which businesses can apply temporary full expensing, although there are cost limits on certain assets, such as passenger vehicles to which the car limit may apply. If your business is eligible, it can claim an immediate deduction for the business portion of the assets cost. Remember, your business can only claim the deduction for the business use of the asset you need to reduce the deduction to account for any private use.
If you're unsure if you're eligible, seek professional advice from your tax agent.
For more information you can visit: Temporary full expensing | Australian Taxation Office (ato.gov.au)
Disclaimer: The information in this article is not intended to, and should not be relied upon, to provide tax, legal, investment or accounting advice. You should consider whether the information is appropriate to your needs, and where appropriate, consult your own tax, legal, investment or accounting advice.