Temporary Full Expensing – Claim your immediate deduction before 30 June 2022
Tax Law - 22 Feb 2021
In an effort to stimulate business investment in the current economic environment, the 2020 Federal Budget introduced temporary full expensing (TFE) rules. These rules allow businesses to immediately deduct the cost of depreciating assets, regardless of their cost.
This deduction may lead to a tax loss in the current income year. Companies have the opportunity to claim a refund of this tax loss where they have paid income tax in in the 2018/19 onwards income year, essentially providing a cash refund for the acquisition of the asset.
Which businesses are eligible for the deduction?
Eligibility is very wide – if your business’ aggregated turnover is less than $5 billion, you can access the TFE rules.
What assets are eligible for the deduction?
- The depreciating asset must be held, first used or installed ready for use in Australia for a taxable purpose, such as carrying on a business, between 6 October 2020 and 30 June 2022.
- Where the business’ aggregated turnover is less than $50m, second-hand depreciating assets are eligible.
- CGT assets (such as shares, options, land, etc) are not eligible.
What can you claim?
There are no limits on the TFE rules, and the cost of the asset also includes any expenditure on improvements to the depreciating asset.
Potential cash back for companies
Companies that claim an immediate deduction under TFE can choose to either carry forward the loss to reduce taxable income in future income tax years or claim a refundable tax offset under the loss carry back rules, which results in a cash refund.
How can ABA Legal Group assist?
The depreciation rules have become extremely complex in recent years, as changes announced in successive budgets have created inconsistent provisions. Depending on the time a depreciating asset was acquired, there may be limits on the cost of the asset of $50,000, $150,000 or no limit under the TFE rules.
Additionally, while the TFE rules are broad, they do not cover all acquisitions. For example, a business with a turnover exceeding $50m would not be able to claim a full deduction for a second hand depreciating asset under the TFE rules, but is able to claim a full deduction under the older Instant Asset Write-Off provisions.
At ABA Legal Group, we can distil these complex and inconsistent provisions into plain English advice for your business. Whether it is assessing an asset that has been acquired previously, or strategic planning for business expansion, speak to us now to ensure you can maximise the cashflow benefits from these provisions.
Interested in learning more? Check out our tax law and consultancy services here and get in touch with one of our experienced tax lawyers for expert advice.
Co-written by Naomi Janega.
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.