As you may recall, as part of the 2020-21 Federal Budget, the Morrison government released a generous tax incentive to help stimulate the Australian Economy due to the onset of COVID-19.

The Temporary Full Expensing stimulus measure, allowed businesses with an aggregated turnover of less than $5 Billion to access an instant deduction for eligible new assets first held, first used or installed ready for use.

This measure is scheduled to end 30 June 2022 (In the 2021-22 budget an extension to 30 June 2023 was proposed. This is still waiting for parliament’s approval).

As we are (hopefully) exiting the COVID-19 lifestyle and the economy going back to some form of normality, your business may be in a better financial position to utilise the Temporary Full Expensing scheme.

If this is something you are considering, we have detailed the main eligibility and other important information to consider below:

• You are eligible if your aggregated business turnover is less than $5 billion. Aggregated turnover includes business that are connected with you.

• An eligible new asset, is an asset first held, first used or installed ready for use before 30 June 2022.

NOTE: If an asset is purchased before 30 June 2022, but not delivered and installed before 30 June 2022, unfortunately that asset isn’t “installed ready for use”. This needs to be considered if the asset will be delivered from overseas or installation is required.

• Second-hand assets can also be deducted, but only if the aggregated turnover of the business is less than $50 million.

• Improvements to eligible assets can also be instantly deducted.

• The ATO motor vehicle limit still applies. The car limit for FY2021-22 is $60,733.

• If you are purchasing the asset through a chattel mortgage or hire purchase loan, the full deduction is still available.

More information can be found on the ATO’s website here – Temporary full expensing

Of course you should never purchase an asset for the sake of a tax deduction, as the tax benefit depends on your tax rate. For example, if you purchase a $100,000 (Ex GST) eligible asset, and you are a base-rate company with a tax rate of 25%, your tax savings will be $25,000 but you are still forgoing $100,000!

However if the asset is expected to reduce costs and/or improve efficiencies within the business, there is an opportunity to further increase profits.

Next Steps

If there is an asset that you have been thinking of replacing or purchasing, the above measure maybe perfect for you.

As stated above, the asset must be installed and ready for use by 30 June 2022. You will need to keep this in mind if organising freight from overseas or extensive installation.

If a lump-sum payment to fund the asset is not feasible, consideration of financing the asset may be worthwhile to smooth cashflow.

If you would like confirmation that you are eligible for the scheme or to discuss the benefits of purchasing a new piece of equipment, please contact our friendly team of accountants at [email protected]

Author: Ashley Sly/Accountant/Element Business