If you’re a small business and thinking of investing in additional Assets now might be the time to do it!

The government has implemented a number of measures to help small business recover from the impact of COVID-19 with one of these being the introduction of Temporary Full Expensing for the financial year ending 30 June 2021.

Temporary Full Expensing allows businesses with an aggregate turnover of up to $5 billion, to immediately deduct the business portion of the cost of eligible new depreciating assets. Unlike the Instant Asset Write-off in previous years which had a cap of $150,000 there is no cap on the value of the new asset that can be claimed, however conditions do apply.

In addition, small and medium sized businesses (aggregated turnover of less than $50 million), can claim the business portion of eligible second-hand depreciating assets under Temporary Full Expensing.

An Eligible Depreciating Asset

  • New or second hand (if second hand; aggregated turnover must be below $50 million)
  • First held by you at or after 7.30pm AEDT on 6 October 2020
  • First used or installed for use by you for a taxable purpose (business purpose) between 7.30pm AEDT on 6 October and 30 June 2022

You can make a choice to opt-out of temporary full expensing for an income year on an asset-by-asset basis if you are not using the simplified depreciation rules.

If you are a small business that chooses to use the simplified depreciation rules, you apply the temporary full expensing rules with some modifications. This includes deducting the balance of your small business pool at the end of an income year ending between 6 October 2020 and 30 June 2022.

Excluded Assets

An asset is not eligible for full expensing if the asset is:

  • building and other capital work;
  • not located in Australia;
  • allocated to a low-value or software development poo
  • deductible under primary production depreciation rules

There is no general limit on the cost of eligible assets to which you can apply Temporary Full Expensing, but there may be specific cost limits on certain assets, such as passenger vehicles to which the car limit may apply.

Example

New asset purchase – Printing Places Pty Ltd has an aggregated turnover of $800,000 in the 2021 Financial Year. On the 10th December 2020 they purchase a state of the art printer for $160,000 and immediately begin using it wholly for business purposes. Under the previous instant asset write off the company would have to depreciate the asset based on its effective life as the cost was greater than the $150,000 threshold. Under temporary full expensing the company can claim the full cost of the printer in the 2021 financial year.

For some initial help in understanding whether your depreciable asset purchase maybe eligible for an immediate deduction, use our Calculator.

There is a lot more to the concept of Temporary Full expensing and we are here to help you navigate the new legislation. Your reasons for purchasing new assets should be a business decision and not driven by tax alone. The 2021 financial year is definitely one to seek advice with on Tax Planning to make sure you are not missing out on any opportunities.

For more information about Temporary Full Expensing, please contact your Davidsons team member. Alternatively call us on 03 5221 6399 or email us at info@davidsons.com.au for more assistance.  

Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article