Temporary full expensing rules ending 30 June

Have you been taking advantage of temporary full expensing (TFE)? Were you aware that this concession is about to come to an end?

Unless addressed in the May budget, ATO temporary full expensing is due to expire on 30 June 2023. This means you’ll no longer be able to claim an immediate deduction for the full cost of eligible depreciable assets. 

The question is, what happens after this tax incentive ceases? And what do you need to do and consider to benefit before it does? 

Why was TFE introduced?

If you’re not overly familiar with TFE, here’s a quick overview. 

Temporary full expensing was launched by the government on 6 October 2020 as part of the COVID-19 economic recovery plan. 

Its primary aim was to encourage businesses with an aggregated turnover of less than $5 billion to invest in capital equipment and reduce their tax burden enabling growth. It also supports the broader economy by stimulating economic activity. 

Eligible assets are new depreciable assets, including equipment, machinery, and technology investments. Buildings and other structural improvements are generally excluded.

The measure also applies to second-hand assets for small businesses with an aggregated turnover of up to $50 million.

What happens from 30 June?

After temporary full expensing ends on June 30, businesses can no longer claim an immediate deduction for the full cost of eligible depreciable assets. 

Instead, the status quo will revert to claiming deductions over several years:

• If you’re eligible and elect to apply the simplified depreciation rules, you can effectively claim an immediate deduction of 15% of the asset cost in the first year, and 30% each year after.
• Otherwise the general depreciation rules will apply to depreciate over the assets effective life.

We expect the instant asset write-off will continue for eligible businesses. However, the threshold will need to be determined. It was $30,000 pre-COVID but may reduce back to $1,000.

Act now to meet conditions and benefit

In light of TFE ceasing, we recommend you confirm your eligibility and identify any eligible assets you need to invest in for your business. 

Once you've identified them, plan your purchases to take advantage of this tax incentive. Assets must be acquired before June 30, so you may need to prioritise your purchases accordingly.

Importantly, as well as being purchased by 30 June, your eligible assets must be installed and ‘ready for use by that date, not just ordered and paid for. 

Therefore, even if an invoice is dated before 30 June 2023, if the asset isn’t available to your business until after 30 June, it’s not eligible for TFE.

Examples of assets that qualify for TFE

To help you identify TFE-eligible assets for your business, here are some examples:

• Computers and other office equipment – Including laptops, desktops, printers, and other electronics used for business purposes.
• Vehicles – Including cars, trucks, and vans that are used for business purposes. However, there are certain restrictions on the cost of the vehicle and the amount of personal use allowed.
• Furniture and fixtures – Including desks, chairs, tables, and other furniture used in the office or other business locations.
• Machinery and equipment – Including manufacturing equipment, construction equipment, and other machinery used to produce goods or perform services.
• Certain types of property improvements – Including improvements to leased or owned commercial property, such as roofs, heating and cooling systems, and lighting systems.

Importantly, the asset must be used in your business for the production of income. It cannot be for personal use.

Last call for temporary full expensing

With delays in deliveries still common, you should start looking at eligible asset purchases soon to ensure they’re installed and ready for use in time. You don’t want to miss out on this helpful tax incentive. 

If you need further assistance in understanding temporary full expensing or what assets are eligible, please contact your Maxim Advisor or reach out to our team.