Act Now: Temporary Full Expensing Ending on 30 June 2023

Attention small business owners! As the end of the financial year approaches, it’s important to be aware that the Temporary Full Expensing measure introduced by the Australian government in response to the COVID-19 pandemic will be finishing on 30 June 2023. 

This means that businesses have a limited time to take advantage of this measure, which allows them to immediately deduct the full cost of eligible assets in their tax returns. As part of your 2023 financial year tax planning, it’s essential to consider whether your business is eligible for Temporary Full Expensing and whether you should take action to benefit from this measure before it expires.

Here’s what you need to know about the Temporary Full Expensing measure and how it can benefit your small business.

Eligibility:

You may be eligible for Temporary Full Expensing if you fall into one of the following categories:

• A business with an aggregated turnover of less than $5 billion.
• A corporate tax entity that meets the alternative income test.

Eligible Assets:

For the income years of 2020-21, 2021-22, and 2022-23, you can claim a deduction for the business portion of the cost of:

• Eligible new assets that were 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 7.30 pm AEDT on 6 October 2020 and 30 June 2023, and 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.

Benefits

By immediately deducting the full cost of eligible assets, small businesses can reduce their taxable income and improve their cash flow. This can allow businesses to invest in new equipment, technology, or other assets that can improve their productivity, competitiveness, and profitability.

For example, a small business that purchases a new vehicle for $50,000 can claim an immediate deduction of $50,000 in their tax return, reducing their taxable income and tax liability. Without the Temporary Full Expensing measure, the business would have to claim a deduction over a number of years, reducing the immediate benefit to their cash flow.

Limitations of Temporary Full Expensing

While Temporary Full Expensing can provide significant benefits to small businesses, there are some limitations to be aware of. The measure only applies to eligible assets acquired from 6 October 2020 to 30 June 2023, so businesses that acquired assets before or after this period may not be eligible. 

Assets that are excluded from eligibility are:

• Assets assigned to a low-value pool or a software development pool.
• Specific primary production assets, including water facilities, fencing, horticultural plants, or fodder storage assets, are primary production depreciating assets unless you are a small business entity that has opted to use simplified depreciation rules for these assets.
• 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 primarily in Australia to carry on a business.

Moreover, if your business has an aggregated turnover of $50 million or more, you cannot immediately deduct the cost of an eligible asset that is either a second-hand asset or an asset you committed to hold, construct, or use before 7.30 pm AEDT on 6 October 2020.

It’s also important to note that claiming a deduction under Temporary Full Expensing does not mean that the asset is exempt from capital gains tax (CGT) when it is eventually disposed of. CGT will still apply, and businesses should consider this when deciding whether to claim the deduction.

How to Claim

To claim a deduction under Temporary Full Expensing, businesses should keep records of their eligible asset purchases and include the deduction in their tax return. The deduction should be included in the label “Total depreciating assets” in the tax return form.

If you’re unsure about your eligibility for Temporary Full Expensing or would like more information, visit the Australian Taxation Office (ATO) website or speak to your Tax Accountant at Investax. 

The Temporary Full Expensing measure can create a great advantage for small businesses in 2023 FY, offering them a chance to enhance their financial performance and competitiveness by instantly deducting the full cost of eligible assets. However, navigating the complexities of tax planning can be daunting for small business owners. This is where the Investax accountant comes in. 

We can help you identify eligible assets, assess your business’s financial situation, and develop a tax planning strategy that maximizes the benefits of this measure. By working with Investax, you can make the most of this opportunity before it expires on 30 June 2023 and set your business up for long-term success.

We offer a 15-minute free consultation to discuss your tax, property investment and business needs. Book your complimentary consultation now.

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