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Temporary Full Expensing of Assets for Businesses

March 22, 2021

Announced in the 2020 federal budget, the Government introduced a temporary measure to allow businesses to claim an immediate deduction for the full cost of eligible capital assets.

Under the new measure, businesses with aggregated annual turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new assets.

However, there are a number of conditions that must be met in order for a business to be eligible as well as several exclusions that may make a business ineligible.

Eligible businesses

  • To be eligible to claim the full expense of an eligible depreciating asset, the business must have an aggregated annual turnover of less than $5 billion.
  • Corporate tax entities that do not meet the $5 billion aggregated turnover test can access temporary full expensing if they satisfy an alternative income test.
  • The temporary full expensing measure is not limited to corporate tax entities: it is available to all taxpayers which meet the relevant conditions.

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 must be below $50 million)
  • First held  at or after 7.30pm AEDT on 6 October 2020
  • First used or installed ready for use for a taxable purpose between 7.30pm AEDT on 6 October 2020 and 30 June 2022.

The Temporary Full Expensing measure does not apply to an asset if any of the following exclusions operate:

  • buildings and other capital works for which you can deduct amounts under Division 43
  • assets that:
  • will never be located in Australia, or
  • Will not be used principally in Australia for the principal purpose of carrying on a business.
  • The asset is allocated to a low value pool
  • Expenditure on the asset is allocated to a software development pool
  • Certain primary production assets (water facilities, fencing, horticultural plants or fodder storage assets), unless you are a small business entity who chooses to apply the simplified depreciation rules to these assets

There are no general deduction limits relating to the cost of the asset. That is, a taxpayer is entitled to a deduction in the year in which the asset is first used or installed ready for use for the full amount of the asset’s cost.

Existing assets

For existing assets, an immediate deduction can be claimed for the business portion of the cost of improvements incurred between 7.30pm AEDT on 6 October 2020 and 30 June 2022.

If the first element of an asset’s cost has been deducted under the instant asset write-off or the backing business investment incentive in an earlier income year, the improvement costs of that asset can still be deducted in a later year under temporary full expensing.

Election to opt out

If an asset qualifies for an immediate deduction under temporary full expensing, a business can choose to claim a deduction using other depreciation rules. However, the business must notify the ATO that they have chosen not to apply temporary full expensing to the asset, by the day their income tax return is lodged.

If a business’s depreciating asset is not eligible for temporary full expensing, or it has been chosen not to apply temporary full expensing, other depreciation provisions such as instant asset write-off or backing business investment may still apply.

We’re here to help

For more information surrounding the conditions of temporary full expensing of assets for businesses and how they apply to you, contact our friendly team today on 07 3217 2477.