Tax Depreciation Incentives

There has never been a better time to claim tax deductions for new depreciable asset purchases than now!  Temporary Full Expensing (TFE) measures are currently in effect until 30 June 2022 (with legislation pending to extend the date until 30 June 2023) which means in most cases a business will be able to claim a 100% tax deduction on purchase of an asset.

General rules

Generally, businesses with an aggregated turnover of less than $5 billion can claim a tax deduction for the business portion of the cost of assets first held at or after 7.30pm AEDT on 6 October 2020.

On face value this measure can seem very simple, however there are some intricacies that deem certain assets ineligible for TFE.  Below is a summary of some of the minutiae of the measures

Common Types of Assets Aggregated Turnover <$50M Aggregated Turnover $50M to $5B
Eligible new asset
Eligible second-hand asset
Cost of improving existing asset
Capital Works
Low Value Pool assets*
Passive investment property assets
Asset not used or located in Australia

*If a Low Value Pool exists, all new eligible assets must be allocated to this pool and cannot be fully expensed under TFE.

Other Elements

  • Eligible businesses can choose to apply TFE on an asset-by-asset basis, compared with the Instant Asset Write-Off and General Pool provisions. This choice is irrevocable, so the asset will be required to be depreciated using the standard rates of depreciation over its lifetime if not immediately expensed.
  • Small Business Entities with an existing general pool balance as at 30 June 2021 and aggregated turnover less than $10M are required to write off this balance in full; if the aggregated turnover is above $10M, the pool will continue to depreciate at 30% each year.
  • Assets which are leased out more than 50% of the time were previously ineligible to be depreciated under the simplified depreciation rules. However, there is no equivalent exclusion for these types of assets under TFE rules, and as such, is an unexpected outcome of the new measures.
  • Some assets are ineligible or subject to other limits (for example cars have a deduction limit).

Existing complex depreciation rules are not getting any simpler, so please contact Hoffman Kelly for any questions specific to your situation before you purchase new assets to ensure you get the tax treatment you are expecting.