Rules surrounding full expensing of assets
In the 2020 federal budget, the government announced new rules relating to fully deducting assets used in your business. This letter is to provide you with a snapshot of the rules, so that you can understand how they affect you.
There is no cost limit relating to the size of the deduction. That is, an asset of any value may qualify for a full deduction (except for luxury cars). However, you are not required to claim the full deduction. You may opt-out and claim regular depreciation if it gives you a better tax outcome.
New business assets
To claim a full tax deduction on a new business asset, it needs to be:
• purchased by the business between 7:30pm AEDT 6 October 2020 and 30 June 2022
• installed ready for use in the business between those dates
• principally used in your business, and
• located in Australia.
New assets that are building works are not eligible, as well as some primary production assets.
You cannot claim a full tax deduction for the cost of a second-hand asset unless your business group has turnover less than $50 million per annum.
Installations and upgrades
The cost of installing an asset, so that it is ready to be used, can qualify for a full deduction in its own right.
Also, if you have an older asset that needs an upgrade, the cost of the upgrade can qualify for an outright deduction as well.
Installations and upgrades are subject to the rules above.