The temporary full expensing measure is a significant tax incentive introduced by the Australian government to encourage business investment in new assets. Under this measure, businesses can claim an immediate deduction for the full cost of eligible depreciating assets. This applies to assets acquired and first used or installed ready for use between 6 October 2020 and 30 June 2023.
Under the framework of this measure, businesses with an aggregated turnover of less than $5 billion can take advantage of these deductions. This includes new assets and improvements to existing assets. The measure is part of a broader strategy to stimulate economic recovery by incentivising businesses to invest in capital assets, thereby driving growth and productivity.
A common misconception is that this measure applies to all business expenses. However, it specifically targets eligible depreciating assets, which are typically tangible items like machinery, tools, and equipment, but can also include intangible assets like patents. It's crucial to differentiate these from general operational expenses, which remain subject to traditional tax deduction rules.
To see how this plays out in practice, consider a construction company in Melbourne that purchases a new excavator for $300,000 in May 2022. Under the temporary full expensing measure, the company can claim the entire $300,000 as a tax deduction in the 2022 financial year. Assuming a corporate tax rate of 30%, this deduction reduces the company's tax liability by $90,000, providing a significant cash flow benefit.
In our experience reviewing thousands of properties across Australia, we’ve noticed that many business owners overlook the potential of this measure. Often, they fail to realise that improvements to existing assets also qualify, which can lead to missed deductions. Additionally, businesses sometimes delay asset purchases due to cash flow concerns, not realising that the immediate tax deduction can significantly alleviate financial pressure.
The answer can differ depending on your situation. For instance, businesses with an aggregated turnover exceeding $5 billion are not eligible. Additionally, assets acquired before 6 October 2020 or after 30 June 2023 do not qualify. Furthermore, second-hand assets are generally ineligible for businesses with a turnover of $50 million or more, except for certain industries like primary production.
When considering whether to use this measure, it's essential to consult with a Chartered Quantity Surveyor and an accountant. These professionals can ensure that you're maximizing your tax benefits while remaining compliant with ATO regulations. They can also help identify which assets qualify and how to best structure your asset purchases.
To take advantage of this measure, follow these steps: