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Temporary Full Expensing Explained

temporary full expensing explained

With the end of financial year fast approaching, and the temporary full expensing scheme extended to 30 June 2023, now is the perfect time to understand what this scheme can do for your business.

With this temporary measure, businesses are now able to immediately deduct the full cost of eligible assets. The Federal Government first implemented temporary full expensing in 2020 to aid with the post-pandemic business recovery.

What is temporary full expensing?

Under temporary full expensing, eligible businesses can write off the entire cost of depreciable assets, regardless of their value, in the year that they are first acquired, first put to use, or installed ready for use.

Improvements made to already existing eligible depreciating assets during this time period are likewise fully deductible in cost.

Who is eligible?

Any business that has an annual turnover of less than $5 billion is qualified to use temporary full expensing. For entities with an aggregated turnover of more than $5 billion, an alternative income test is applicable.

In its income tax returns for 2020–2021 and 2022–2023, your company may immediately deduct the business portion of the cost of any eligible new depreciating assets and the cost of improvements to existing assets.

The business component of qualifying second-hand depreciating assets is also eligible for temporary full expenses for companies with a combined annual revenue of less than $50 million.

What assets can I claim?

Any eligible asset needed for your business (such as the business percentage of a new or used car, computers, or tools/equipment used for your business) may be claimed.

There are particular cost limits on some assets, such as passenger vehicles, to which the car limit may apply, but there is no overall cap on the cost of eligible assets you can claim.

The asset must be:

  • new or second-hand (if it is a second-hand asset, your aggregated turnover is below $50 million)
  • first held by you at or after 7.30pm AEDT on 6 October 2020
  • first used or installed ready for use by you for a taxable purpose (such as a business purpose) between 7.30pm AEDT on 6 October 2020 and 30 June 2022.

Some primary production assets, buildings, or other capital works are excluded under these measures. Please check out the ATO Website for a full list of asset exclusions.

What’s the difference between the different tax depreciation methods?

There are several depreciation methods available, including temporary full expensing, instant asset write-off, backing business investment and general depreciation rules.

Contact us or review the ATO’s high level overview of each of these depreciation techniques to determine which one is best for your particular situation.

Questions? Contact us to get in touch with one of our business advisors.

This page contains information that is of a general nature. It does not take into account your specific requirements or circumstances. Before making any financial decisions, you should consider your individual financial situation, objectives, and requirements, and seek financial advice.

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