Temporary Full Expensing and the Immediate Deduction for Depreciating Assets: An ATO Overview

The Australian Taxation Office (ATO) administers several measures designed to stimulate business investment, most notably the temporary full expensing and the immediate deduction for depreciating assets. These initiatives significantly impact how businesses claim deductions for the cost of eligible depreciating assets.

Temporary Full Expensing: A Key Driver of Investment

Introduced as a response to economic challenges, temporary full expensing allows eligible businesses to immediately deduct the full cost of eligible depreciating assets acquired and first used or installed ready for use between 7:30 pm AEDT on 6 October 2020 and 30 June 2023. For companies with a substituted accounting period, this period extends to the end of their equivalent 2023 income year. This provides a substantial cash flow benefit compared to depreciating the asset over its effective life.

To be eligible, a business must have an aggregated turnover of less than $5 billion. Importantly, businesses can also choose to opt out of temporary full expensing on an asset-by-asset basis. This might be strategically beneficial if they anticipate lower tax rates in future years and prefer to claim deductions later.

The range of assets eligible for temporary full expensing is broad, covering most depreciating assets used in carrying on a business. However, there are exceptions, including assets that are specifically excluded under the income tax law, such as buildings and other capital works.

Interaction with the Immediate Deduction for Small Businesses

For small businesses (aggregated turnover less than $10 million), the immediate deduction for depreciating assets has been a long-standing benefit. While temporary full expensing was in effect, it essentially superseded the immediate deduction for assets costing less than $20,000. However, since temporary full expensing ended on 30 June 2023, small businesses are now again utilizing the immediate deduction for eligible assets costing less than $20,000 that are first used or installed ready for use from 1 July 2023. Businesses should carefully assess which assets qualify for each deduction type based on their turnover and the asset’s acquisition and installation dates.

Key Considerations and Compliance

Businesses must meticulously maintain records of asset acquisitions, usage, and any decisions to opt-out of temporary full expensing. The ATO emphasizes the importance of accurate record-keeping to substantiate claims. Seeking professional advice from a registered tax agent is strongly recommended to navigate the complexities of these rules and ensure compliance.

Furthermore, the ATO provides extensive guidance on its website, including detailed information sheets, rulings, and examples to assist businesses in understanding their obligations and entitlements. Businesses are encouraged to leverage these resources and consult with their tax advisors to optimize their tax position while adhering to the regulations. Understanding the sunsetting of temporary full expensing and the reinstatement of the immediate deduction for small businesses is crucial for proper tax planning and compliance.