As part of the Federal Government’s COVID-19 response, the government introduced legislation that allows for the temporary full expensing (“TFE”) of depreciating assets. This allowed for eligible businesses to claim a tax deduction for the full cost of eligible assets in the year the asset was first used or installed ready for use. This legislation was introduced to support businesses and encourage investment during the pandemic.
However, this full expensing of assets legislation will come to an end on 30 June 2023. Therefore, entities intending to access these measures, must have any new asset purchases installed and ready for use by 30 June 2023.
Eligibility
To be eligible for TFE, the entity needs to have an aggregated turnover of less than $5 billion (aggregated turnover is the sum of an entity’s annual turnover and the annual turnover of connected and affiliate entities. This includes connections or affiliations with foreign entities).
Eligible Assets
To be eligible for TFE, the depreciating asset must be:
New or second-hand (if it is a second-hand asset, the entity’s aggregated turnover must be below $50 million)
First used or installed ready for use by the entity for a business purpose by 30 June 2023.
However, eligible assets do not include:
Assets allocated to a low-value pool or a software development pool
Certain primary production assets (water facilities, fencing, horticultural plants or fodder storage assets), unless the entity is a small business entity which chooses to use the simplified depreciation rules
Buildings or capital works
Assets that either:
Will never be located in Australia
Won’t be used mainly in Australia for the principal purpose of carrying on a business.
We also note, if a new vehicle is purchased, the instant asset deduction is limited to the 2023 luxury car limit of $64,741.
Rules from 1 July 2023
From 1 July 2023, the instant asset write-off cost threshold for small business entities reverts to $1,000, and so all asset purchases greater than $1,000 will be required to be depreciated over their effective life (a small business entity is defined as an entity with a turnover of less than $10 million for either the previous year, current year estimate or current year actual).
For all other taxpayers, a tax deduction can be claimed for all assets costing less than $100. All other assets will be required to be depreciated. However, assets costing less than $1,000 can be allocated to a low-value pool, if elected.
Budget 2023- not the end just yet?
While temporary full expensing has been extended in the past, the current end date is 30 June 2023. However, there is a possibility that in the May Federal Budget the TFE legislation may be extended or altered. Only time will tell, but for now it is advised that entities plan according to the current deadline.
If you would like to discuss these changes further and how they may apply to your business, please do not hesitate to contact us at info@bpaccountants.com.au.