What does temporary full expensing mean?

Temporary full expensing. That doesn’t mean much to most business owners, does it? But to your business and accountant, this can be great news!

Why is temporary full expensing great news for your business?

It means eligible businesses can claim an immediate deduction for the business proportion of the cost of an asset in the year it is first used or installed ready for use as a taxable purpose.

Still not quite sure why this is great news?

It can reduce your business’ income tax!

Temporary full expensing was brought in to support businesses and encourage investment after the hard-hit businesses took during and after the pandemic.

While this is a great way for your business to acquire assets with an attractive tax advantage, you should consider if your cash flow and business can support these purchases.

We always recommend you seek the advice of your (Sleek!) accountant before making large asset purchases.

Let’s explore temporary full expensing a bit more so you can fully understand it, its implications for your business and whether it is something your business should pursue.

Before you head off with the chequebook spending up big, you need to check a few things out.

Overview:

 

Are you eligible for temporary full expensing?

First up – are you a business? If you are a sole trader, partnership, Pty Ltd company, or a trust you’ve passed the first eligibility test.

The second is your business or any associated businesses have an aggregated (or total) turnover of less than $5 billion.

If you answered yes to these questions, your business is eligible to claim temporary full expensing.

 

What assets are eligible for claiming temporary full expensing?

The next important part of this claim is checking that the assets you have purchased or want to purchase are eligible to claim.

  • Your assets must be new or second-hand (second-hand only applies if your aggregated total revenue is below $5 million).

The asset must have been held by you at or after 7:30 pm AEDT on 6 October 2020.

The asset must have been first used or installed ready for use by you for a taxable purpose between 7:30 pm AEDT 6 October 2020 and 30 June 2023.

  • Eligible improvements to assets can also qualify if they are ready for use by you for a taxable purpose between 7:30 pm AEDT 6 October 2020 and 30 June 2023.

The asset could have been purchased prior to 6 October 2020 but the improvements must have been made after 6 October 2020.

Some examples of assets your business may purchase include; vehicles to get more salespersons on the road, machinery and tools to improve productivity on the job, computers to hire new employees, additional forklifts to speed up packing orders, or new racking to increase the floorspace in the warehouse.

 

Are there some assets that are not eligible for claiming temporary full expensing?

Yes, there are some assets you cannot claim.

These include:

  • Assets allocated to a low-value pool – they have already been claimed in your business’ tax return.
  • Assets in a software development pool – again, they have already been claimed in your business’ tax return.
  • Certain primary production assets such as fencing, water facilities or fodder storage assets. These are primary production-depreciating assets unless you run a small business entity that chooses to use the simplified depreciation rules for these assets.
  • Certain buildings and capital work you can deduct amounts for under Division 43.
  • Assets that either will never be located in Australia or won’t be used primarily in Australia for the principal purpose of carrying on a business.
 

Is there a limit to the cost of assets to claim through the temporary full expensing?

There are no general limits on the cost of eligible assets. However, certain assets will have cost limits on them.

A good example of the limit to the cost of assets to claim through the temporary full expensing is a passenger vehicle.

The car limit for 2021-22 is $60,733, and in 2022-23 the car asset limit is $64,741.

Temporary full expensing examples

Let’s look at some examples of temporary full expensing:

SNoods, a snack food manufacturer bought a second-hand packaging machine for $25,000, in March 2022. In the following month, they also spent $5000 upgrading the machine so SNoods could package various-sized snacks.

Both these transactions to a total of $30,000 are eligible for the temporary full expensing in the same financial year.


In January 2022, Joe from Sleek Plumbing purchased a new one-tonne ute at a cost of $83,000. Joe’s new plumber employee will use the ute for his plumbing jobs and take the vehicle home at night.

At the same time, Joe also purchased a new small sedan for $20,000 for the salesperson to use to visit clients when quoting jobs and projects. The salesperson will leave the vehicle at the office when not in use for work purposes.

In the financial year 2021-22, there is a limit of $60,733 for vehicles under one tonne to claim the temporary full expensing. Using these rules, Joe can claim the whole of the salesperson’s car in the financial 2021-22 as there is no personal use for the vehicle.

The purchase price of $83,000 for the new plumber’s ute is eligible for the temporary full expensing claim, as there is no limit for vehicles over one tonne. However, the new employee takes the ute home at night and at the weekends, so the percentage of personal use of 18% will be deducted from the temporary full expensing claim.

Joe can fully claim $20,000 for the salesperson vehicle and $68,060 ($83,000 x 18%) for the plumber’s ute in the financial year ending 2022.

 

Should your business use the temporary full expensing or not?

This claim does provide the opportunity for significant tax savings with careful and due diligent tax and capital asset investment planning.

We know this may have created more questions than it answered – need to talk to an accountant? It is always wise to seek an accountant’s advice, especially when making big decisions about your business. Use our live chat service or call our sales on +61 2 9100 0480.

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