Temporary Full Expensing was part of the Australian government’s economic recovery plan launched in October 2020 and set to end on 30 June 2023.
These measures allowed Australian businesses with a turnover of less than $5 billion to immediately deduct the cost of eligible assets, with no upper limit to the amount that you could spend on the asset.
This program encouraged businesses to invest in new equipment, machinery, and other assets by accelerating their tax deductions. By reducing taxable income and tax liabilities, these incentives freed up business capital allowing for an increase in investment and expansion.
what is the impact of temporary full expensing ending?
These measures provided many businesses a significant incentive to invest in capital expenditure, particularly when funding the capital asset purchases from savings, allowing the tax deductions to line up with cash outflow.
A move back to effective life depreciation may see business owners less inclined to invest heavily if the tax deductions are to be spread over many years.
Industries such as manufacturing, construction and technology may be impacted more than other industries as they rely more heavily on capital investment to drive growth and maintain competitive advantages.
how to take advantage of temporary full expensing before its gone
If you are considering investing in new assets in coming months, it may be worthwhile bringing that forward to occur before 30 June 2023.
To be able to claim the deduction this financial year, the asset must be installed and ready to use, so not just on order or paid for.
You can also use the temporary full expensing to write-off the purchase of a car, but please note the write-off is limited to the car cost limit [which is currently $64,741], and the vehicle must be in your possession before 30 June. Don’t forget for cars you may be subject to FBT on any private use [some exemptions apply for electric vehicles, find out more here].
Capital works are not included as eligible assets, however if your turnover is less than $50 million certain second-hand assets are also eligible for the temporary full expensing.
what’s happening from 1 July?
After 30 June 2023 instant asset write-off allowances will revert to the more restrictive pre-Covid rules. This will see instant asset deductions being capped at $20,000 and only businesses with an aggregated turnover of less than $10 million will be eligible.
The $20,000 limit is a per asset limit, which means a business can claim the instant asset write off, if eligible, for multiple assets once they are installed and ready to use.
For small businesses purchasing assets above $20,000, and for all other businesses, asset purchases will be depreciated in accordance with the general depreciation rules. These rules set the amount that can be claimed based on the asset’s effective life.
we’re here to help
If you need more help understanding the how temporary full expensing rules apply to your business and asset purchases, contact our accounting team at firstname.lastname@example.org or give us a buzz on 1300BDEPOT.
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