The Federal Government originally introduced temporary full expensing of depreciating assets to businesses in 2020 to encourage business investment by providing a cash flow benefit, for those businesses that are eligible. This incentive was due to end on 30th of June 2022 but the Government have now extended this until 30th of June 2023.
This is great news for businesses with an aggregated turnover of less than $5 billion (or those who meet an alternative eligibility test requirements)! These businesses can deduct the full cost of eligible depreciating assets of any value as long as they are attained, installed or used by the business by 30th of June 2023. Small businesses with an aggregated turnover of less than $10 million are able to use a simplified depreciation rule for assets attained, installed or used by their business by the 30th June 2023.
Not all costs relating to depreciating assets qualify for the temporary full expensing incentive (e.g. software development pools and/or building and other capital works). Second-hand depreciating assets do not always qualify for temporary full expensing if the business has an aggregated turnover of more than $50 million. Businesses that purchase cars, for example, where the car is used for both business and personal purposes, can only claim the percentage of the cost price that applies to the business purpose percentage of use.
As a result of the full costs of eligible depreciating assets, as well as costs of improvement to existing eligible depreciating assets, being fully deductible some businesses may make a tax loss in an income tax year. In these circumstances, corporate entities have the option to either carry forward the tax loss and use it to offset their future income, or they can also consider applying for a refundable tax offset under loss carry back.
It is important to consider that some businesses may wish to opt out of the temporary full expensing of depreciating assets for an income year (between 2020 and 2023) for some or all of their relevant depreciating assets that we attained during that financial year. They must, however, notify the Australian Taxation Office (ATO) in their tax return for that financial year. This choice cannot be rectified.
It is important to discuss your business’ eligibility and which depreciating assets qualify with your Accountant before making any purchases under this scheme.
Feel free to contact Lana Matovic and her team at Matovic Business Accountants for more information and to discuss your business’ options today.
Email us at info@matovicaccounting.com.au or call (07) 3557 5721.
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