Following the COVID support instant asset write off available for small business in 2020, the Australian Government announced in October 2020 Temporary Full Expensing which allows a business to temporarily write off business assets in full.
The Australian Government has announced a temporary measure to allow businesses to claim an immediate deduction for the full cost of eligible capital assets.
WHY should I care?
This means you can write an eligible asset off in one year versus over the useful life as deemed by the Australian Tax Office. For example, a bar refrigerator in a restaurant normally would need to be written off over 10 years, under this measure the fridge’s cost can be written off against your business assets in one financial year.
WHAT do I need to know about temporary full expensing?
The eligible period is for the 2020-2021 and 2021-2022 taxation years and is for assets first held between 6 October 2020 and 30 June 2022. Thus, it is currently scheduled to end June 30th 2022. Your business must have an aggregated turnover of less than $5 billion, and you cannot make any other claim under other depreciation rules.
You may deduct the business portion of the cost of eligible new depreciating assets and the cost of improvements to existing assets. This measure also is available for 2nd hand assets if your turnover is below $50 million.
Suppose your business makes a loss for the financial year after claiming a full expensing deduction. In that case, you can carry your loss forward to use in future taxation years.
If you wish to depreciate a vehicle, you have a limit for a car of $59,136 in the 2021 financial year. Commercial vehicles with either the ability to seat 9 people or more or have a load capacity of 1000kg or more have no limit.
HOW do I fully expense a capital item
You will be able to fully expense an asset within your 2021 tax return via forms that will be available from July 1st 2021.
From our earlier example, if the new bar fridge bought in March 2021 cost $3,000 and was used 100% for business, the $3,000 cost could be included in the 2021 tax return as an expense versus only $300 if temporary full expensing was not available.
Small businesses that elected to apply simplified depreciation rules have been given an amnesty allowing them to take advantage of temporary full expensing.
More information is available from the tax office here.
Your accountant can assist with the process.
More information can be found about completing a tax return in our guide on a small business tax return.
SUMMARY – Temporary full expensing
This is a great initiative by the Australian Government, which not only benefits your expense deductions but may also have a flow-on effect of increasing your sales if you sell items likely to be depreciated by other businesses. This temporary measure allows your small business to expense a capital item in the current financial year rather than over several years. You can claim this simply through your end of a financial year tax return.