Tax time tip: Temporary full expensing may not last!  

By Gabrielle Stannus
 

Formerly known as the ‘instant asset write-off’, temporary full expensing supports businesses and encourages investment, as eligible businesses can currently claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose.    

Temporary full expensing (TFE) allows for an immediate deduction for purchases of: 

• New, eligible depreciating assets (for businesses with an aggregated turnover under $5 billion), 

• Eligible second-hand assets (for businesses with an aggregated turnover under $50 million), and 

• The balance of a small business pool at the end of each income year in the period (for businesses with an aggregated turnover under $10 million).   

Which assets can be deducted under TFE? 

Depreciating assets under TFE include: 

• Tools and equipment (for example, electric sanders and saws) 

• Computers, laptops and tablets 

• Office furniture (freestanding) 

• Office equipment (for example, coffee machines) 

• Motor vehicles (for example, cars, vans and tractors). 

NB. Horticultural plants are excluded from the simplified depreciation rules 

Why would I choose TFE for my business? 

The main benefit to businesses of TFE is one of timing as it brings forward the deduction on assets that would normally be spread over several years¹. This means the business may pay less or no tax now, but more in the future. The immediate benefit is that TFE can assist cash flow which your business can then potentially use to make further investment or support operations. 

Should I opt out of TFE? 

Your business can make a choice to opt out of TFE for an income year on an asset-by-asset basis if you are not using the simplified depreciation rules. 

You must tell us the ATO your choice to opt out: 

• In your tax return

• By the day you lodge your tax return for the income year to which the choice relates. 

Should I wait to take advantage of TFE? 

To take advantage of TFE, your business must purchase and install eligible assets within the period specified by the Australian Tax Office (ATO): 6 October 2020 up to 30 June 2023. That is, the assets need to be ready for use now, and not in a couple of years’ time.  

TFE is currently listed on the ATO website as in effect until 30 June 2023. However, there is some uncertainty about how long this tax break will remain operational given a new government was elected on the weekend.  

Also, not all businesses will find it advantageous from a tax perspective to generate substantial tax losses that the TFE may generate¹. Speak with your accountant to determine the best approach for your business. 

NB. The advice provided in this article is of a general nature only. Please contact the Australian Taxation Office (ATO) or speak to a registered tax professional about your unique business or personal circumstances. 

References

1. Insight Accounting 2022, ‘Temporary Full Accounting’, viewed 24 May 2022, https://www.insightaccounting.com.au/2022/02/temporary-full-expensing/