Under the rules, from 7.30pm (AEDT) on 6 October 2020 until 30 June 2022, businesses with turnover of up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed.
Below we look at how the scheme works and what an estimated 3.5 million businesses can expense over the next two years.
What is temporary full expensing?
Under the current law, businesses with annual aggregated turnover of less than $500 million are entitled to an immediate tax deduction for the cost of a depreciating asset, whether new or second-hand, with a cost of less than $150,000 which is first used or installed ready for use between 12 March 2020 and 31 December 2020.
But under the new measure, businesses with aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7.30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022.
Businesses are also able to deduct the full cost of improvements to these assets and to existing eligible depreciating assets made during this period.
Who can access this measure?
Businesses with aggregated annual turnover of less than $5 billion, which translates to 99 per cent of all businesses.
When does it start?
The measure is currently in Parliament, but it has the initial support of Labor, meaning that when it is passed, it will start from 7.30pm, 6 October 6 2020.
I’m a small business. How does it apply to me?
Under temporary full expensing, small-business entities with an aggregated turnover of less than $10 million are able to deduct the full cost of:
- eligible depreciating assets that are first held, and first used or installed ready for use for a taxable purpose, between the 2020 budget time and 30 June 2022;
- the second element of cost of these assets and of existing eligible depreciating assets incurred between the 2020 budget time and 30 June 2022; and
- the balance of their general small business pool.
If an asset is not eligible for temporary full expensing because it was acquired before the 2020 budget time, the time by which the asset must be first used or installed ready for use to qualify for the enhanced instant asset write-off is extended until 30 June 2021.
The provisions that prevent small-business entities from accessing the simplified depreciation regime for five years if they opt out of the regime continue to be suspended for income years that include 30 June 2021 and 30 June 2022.
How does it work?
Businesses need to follow rules when making use of this measure. For example, the asset needs to be purchased and installed within the time period the government specified, and they need to be ready for use.
Generally, to be eligible for the temporary full expensing incentive, a depreciating asset must be:
- first held, and first used or installed ready for use for a taxable purpose, between the 2020 budget time and 30 June 2022; and
- located in Australia and principally used in Australia for the principal purpose of carrying on a business.
What can I claim?
“A trucking company will be able to upgrade its fleet, a farmer will be able to purchase a new harvester and a food manufacturing business will be able to expand its production line,” Mr Frydenberg said on Tuesday.
Other eligible assets include computers; tablets; tools for use on a work site such as drills, ladders, tool boxes; equipment like a fridge or a grill; phones; point of sale systems; or anything else that is used in the running of a business.
There is no cap on the value of the new asset that can be claimed, unlike the current instant asset write-off which has a cap of $150,000.
Some assets will be excluded such as capital works and assets allocated to a software development pool.
Can I claim a second-hand asset?
Businesses with aggregated turnover of less than $50 million will also be entitled to an immediate tax deduction for the full cost of second-hand assets acquired from 7.30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022.
Additionally, businesses with aggregated annual turnover between $50 million and $500 million can claim an immediate deduction for the full cost of eligible second-hand assets costing less than $150,000 if they are purchased by 31 December 2020 and installed ready for use by 30 June 2021.
What happens to the current scheme?
The budget announcement also extends the current instant asset write-off by giving businesses an extra six months, until 30 June 2021, to first use and install those assets.