As an Australian business owner, you are no doubt aware of the changes to temporary full expensing and the fact that it is ending soon.
This tax incentive has been a significant help to many businesses, particularly those affected by the economic impact of the COVID-19 pandemic.
The temporary full expensing scheme has been a game-changer for many small and medium-sized businesses that have been able to invest in new equipment, machinery, or vehicles.
Although set to terminate this year, there is still time to take advantage of the incentive before it ends.
What is temporary full expensing?
As per the ATO:
“Temporary full expensing supports businesses and encourages investment, as eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose.’’
The temporary full expensing incentive period is from 7:30pm (AEDT) on 6th of October 2020 until the 30th of June 2023.
Overview of eligibility
To be eligible for the temporary full expensing incentive, businesses must have an aggregated turnover of less than $5 billion or be a corporate tax entity that meets the alternative income test.
The ATO States:
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 2020 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.
You can make a 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.
You must tell the ATO your choice to opt out:
- in your tax return
- by the day you lodge your tax return for the income year to which the choice relates.
In any large scope of works, there is likely immediate deductions available for the assets but also annual depreciation claims for the Division 43 Capital Works.
How do I claim for works that I have completed at my business?
Any works that has been completed you are entitled to claim for the Division 43 depreciation deduction as well as ‘scrapping’ of any qualifying assets.
To claim for Division 43 and scrapping, a depreciation schedule will need to be organised from a quantity surveyor that specialises in tax depreciation.
Our client Arthur, who during 2021 completed works at his pub. Arthur qualified to make use of the temporary full expensing for his assets and was able to claim for the structural works he completed as well.
To show the deductions made over five years after upgrades, as well as the deductions for the disposed assets in the first year, the following table is provided:
If Arthur chose not to use the temporary full expensing, below would be his deduction results:
Every business is different, and it is important to speak to your business adviser to see how these incentives will fit with your business.
There is still time to take advantage of the temporary full expensing scheme as well as organise a depreciation schedule for this financial year.
We would be happy to discuss any questions you may have around the temporary full expensing scheme – call us on 1300 922 220.