Temporary Full Expensing

What is temporary full expensing

As a COVID relief up to 30 June 2023, the ATO has allowed temporary full expensing of asset in cost for the first year they are used or ready for use.

Who can claim temporary full expensing

Temporary full expensing is available to:

A business with an aggregated turnover of less than $5 billion or

–   A corporate tax entity that has:

–   Income under $5 billion for either the 2018-19 or 2019-20 year (before 6 October 2020).

–   Depreciating assets first held, used or ready for use in 2016-17, 2017-18 and 2018-19 costing more than $100  million.

What can be fully expensed

Eligible assets include those that are:

–   New or second-hand

–   First held, used, or installed ready to use for taxable purposes between 6 October 2020 and 30 June 2022

–   Exclusions include

      –   Assets allocated to a low pool value or software development pool

      –   Certain primary production assets (water facilities, fencing etc), unless you use simplified depreciation rules

      –   Building and other capital works you can deduct under Division 43

      –   Assets not principally used or located in Australia for the purpose of carrying out a business.

How do I work out my deduction

Your business can immediately deduct the business portion of the costs of eligible new assets and cost of improvements to existing assets, in the income tax returns for year 2020-21 and 2021-22. There is no general limit on the cost of your assets you claim except in the case of a car, where a depreciation car limit of $60,733(2021-22) applies. Please note the car limit may change each financial year.

Can new assets be fully expensed

For new assets, you can deduct the business portion and the costs of any improvements incurred in the year it is first used or ready for use, this may be the same year it was purchased or in a later year.

In the case where the asset is used in later year, you will need to deduct the sum of the asset’s opening adjustable value for that year and any costs of improvements incurred within that year.

When second-hand assets can be fully expensed

Temporary full expensing can also apply for eligible second-hand assets in which the business portion costs of the asset and costs of improvements incurred in the year can be deductible. This, however, only applies to businesses with an aggregated turnover of less than $50 million. 

Can existing assets be fully expensed

For existing assets, you cannot claim the acquisition cost of existing assets under temporary full expensing. Likewise, to second-hand assets, you can claim an immediate deduction for the business portion of the costs of improvements incurred between 6 October 2020 and 30 June 2022.

If you have already deducted the first element of an asset’s cost under the instant asset write-off or the backing business investment in an earlier year. You can still deduct the improvement costs of that asset in a later year under temporary full expensing.

Other alternatives

Besides temporary full expensing, other depreciation methods  include:

–   Instant asset write-off – a deduction can be claimed for assets purchased by 31 December 2020 and first used or ready for use before 30 June 2021. This method is only available to aggregated turnover of under $500 million.

–   Business backing investment (accelerated depreciation) – a deduction for the cost of new depreciating assets at an accelerated rate for the income years 2019-20 and 2020-21.

Contact Us

If you want to know more on this tax deduction or require assistance in applying temporary full expensing to your assets, feel free to contact our friendly team for support or click here fore more information.

Source: ATO