Temporary full expensing available until 30 June 2023
New legislation from the government has extended the temporary full expensing rules to 30 June 2023. This legislation was originally announced in the 2021 Federal Budget.
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 for an eligible asset. That is, an asset of any value may qualify for a full deduction, except for motor vehicles above the cost limit of $60,733 from 1 July 2021.
To claim a full tax deduction on a business asset, it needs to be:
• purchased by the business between 7:30pm AEDT 6 October 2020 and 30 June 2023
• 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 can claim a full tax deduction for the cost of a second-hand asset if 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.
Editor’s note: It is advisable to select either the “opt out” or the “small business rules” paragraph as needed for your client.
Opt out available
As part of the follow-up amendments from the 2020 Federal Budget, you are also allowed to pick and choose which eligible assets to fully write-off.
This provides you an opportunity to review your eligible assets this year and determine whether it is feasible to claim an outright deduction. [This is especially important for tax planning purposes in the lead up to making your trust’s annual income distribution.] / [This may be important for tax planning purposes, especially if you are not interested in claiming a loss carry-back for your company this year.]
Small business rules
Any new or second-hand assets that meet the installation requirements are immediately written-off this year as an instant asset write-off. As well as the deduction for eligible full expensing assets, your entire small business depreciation pool will also be written off.
Editor’s note: Pick one or more of the following 3 finishes.
[This will create a large reduction in your tax liability this year. However, please note that we have already reduced your income tax instalments in anticipation of your reduced tax bill.]
[We understand that these additional deductions will put your business into a loss position, which effectively loses your tax-free threshold. Please contact us if you wish to discuss this further, including other options available to you and your business this year.]
[This large deduction may not be something you want to claim all at once and would rather smooth out over a number of years. Unfortunately, as a small business you are ineligible to “opt out” of the full expensing rules. Please contact us if you wish to discuss this further, including other options available to you and your business this year.]