The temporary full expensing incentive was introduced in the 2020 Federal Budget to help boost the economy. The policy aims to help support investment and jobs, and has made some major changes to how business owners can claim eligible depreciating assets.
In this article we will look at:
What is temporary full expensing of depreciating assets?
Temporary full expensing is part of the JobMaker Plan developed to boost economic growth, create jobs, invest in future industries and skills, remove red tape, guarantee essential services, and restore confidence during the COVID-19 pandemic.
Under this policy, businesses with an aggregated annual turnover up to $5 billion can deduct the full cost of eligible assets that are acquired and first used by 30 June 2023. Temporary full expensing, is available to 99 per cent of Australian businesses and is ultimately an evolution of the instant asset write-off.
On face-value this seems straightforward – a business can buy an asset and claim that expense straight back. However, with different aggregated turnover requirements, previously used assets, and past arrangements such as the instant asset write-off and Backing Business Investment (BBI) incentive, it’s more complex than it seems.
Business types and aggregated turnover
Before we get into how full expensing, the enhanced instant asset write-off and the BBI all work together, it’s important to understand what businesses can take advantage and how.
A business ‘type’ can be based on its aggregated annual turnover. The good news is that all business types can take advantage of temporary full expensing.
The Australian Taxation Office define Small Business Enterprises (SBE) as businesses with an aggregated turnover of up to $10 million. For this article, we will call Medium Business Enterprises (MBE) those with an aggregated turnover of up to $50 million, and Large Business Enterprises (LBE) as those with an aggregated turnover between $50 and $500 million.
Key dates to remember
There are some key dates to be aware of. Understanding the significance of these dates will help businesses understand how full expensing works.
- 12 March 2020: The government announced the enhanced instant asset write-off and BBI incentive.
- 6 October 2020: This was budget night, and when the full expensing policy was announced.
- 30 June 2023: This is the end of the 2022-23 financial year and the last date businesses can take advantage of full expensing.
Timeline for full expensing for brand-new assets
Since we have covered the basics, let’s dive into how full expensing works for brand-new assets.
What happens to brand-new assets purchased from 12 March 2020 and before 7:30pm (AEDT) on 6 October 2020?
If the brand-new asset costs less than $150,000 all business types can instantly write it off when it’s installed before 30 June 2021. However, if the asset is above the $150,000 limit, businesses can only depreciate it using accelerated rates under the BBI incentive.
What happens to brand-new assets purchased after 7:30pm (AEDT) on 6 October 2020 and before 1 July 2023?
This is where the lucrative deductions are supercharged.
Any business type, with an aggregated turnover of up to $5 billion, can write-off the full expense of eligible assets instantly. With no threshold or limit to the number of assets a business can claim in a single year, this incentive has the potential to boost cash flow by hundreds of thousands.
What happens to second-hand assets purchased from 12 March 2020 and before 7:30pm (AEDT) on 6 October 2020?
If the second-hand asset was valued below $150,000 all SBEs, MBEs and LBEs can instantly write it off in that year’s tax return. The only requirement is that it is installed by 30 June 2021.
For second-hand assets valued above $150,000, depreciation works based on the business’s aggregated turnover. SBEs can place the asset in their simplified small business pool, while MBEs and LBEs must depreciate the asset based on its effective life.
What happens to second-hand assets purchased after 7:30pm (AEDT) on 6 October 2020 and before 1 July 2023?
All SBE and MBEs can instantly deduct any eligible second-hand asset in the same financial year through full expensing.
LBEs could also instantly deduct the asset if it’s valued at less than $150,000. However, the asset must be purchased on or before 31 December 2020 and installed by 30 June 2021. If the asset’s purchase and installation dates don’t meet this timeframe, it must be depreciated based on its effective life.
Is the small business pool still available?
Small businesses can still take advantage of the small business pool, which allows SBE’s to group assets and depreciate them at a higher rate. A SBE can now deduct the entire balance of their pool at the end of the financial year while full expensing is available.
Start taking advantage of full expensing now
Australian businesses can take advantage of temporary full expensing and all other depreciation incentives with a BMT Tax Depreciation Schedule.
A BMT report will take all business incentives into account and apply them to qualifying assets when applicable. For over twenty years, BMT has helped businesses across Australia claim back more at tax time. To learn more about BMT and commercial services, call BMT on 1300 728 726 or Request a Quote.