The Australian Taxation Office has announced that Temporary Full Expensing is set to finish on the 30th of June 2023. Paul Turnbull, Manager at DFK Benjamin King Money, provides a helpful guide below on what you should consider before the deadline.
- Business clients should keep in mind the immediate deduction for eligible capital expenditure is set to finish this financial year, 30 June 2023.
- The assets purchased will need to installed and ready for use prior to 30 June 2023. Delivery of assets after 30 June 2023 will not be eligible for an immediate deduction.
- With the current challenges with supply chains and in particular vehicles we would encourage businesses to consider their capital expenditure budgets and the timing of purchases.
What is Temporary Full Expensing (TFE)?
Temporary full expensing supports businesses and encourages investment, as eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose.
Basic requirements and outline of TFE
- Eligible taxpayers that purchase an eligible business asset at or after 7:30 pm 6 October 2020 to 30 June 2023 can receive a deduction for the full value of the asset in the income year that is was purchased and installed ready for use.
- To qualify to use TFE the taxpayer is required to carry on a business with aggregated turnover of less than $5 billion.
- Businesses that have not used the small business simplified depreciation rules can opt out of TFE.
Implications of temporary full expensing
It’s important that when a business taxpayer uses the TFE regime they consider the potential implications and outcomes:
- If a taxpayer uses the TFE it could result in a large tax deduction that may result in a significant tax loss. The ability to offset the loss against future taxable profits will be subject to additional tax measures which could include the company tax loss rules or trust loss rules. The future deductibility of these losses may be disallowed if there has been a change in ownership and/or activities of the business.
- The future sale of an asset fully expensed via these rules will be fully assessable. If the asset ceased to be used in the business and was subsequently sold, a proportion of any proceeds received on sale would be assessable
Summary
Business taxpayers need to consider carefully their choice in relation to the deduction they claim for assets purchased. These choices have implications beyond the financial year in question and adverse outcomes may occur.