Temporary Full Expensing Rules are ending on 30 June 2023

If you are a small business owner or a company that relies on purchasing assets to operate, you may want to pay attention to the temporary full expensing rules that are set to end on 30 June 2023.

This tax incentive program was introduced by the Australian Government in 2020 to help businesses recover from the economic impact of the COVID-19 pandemic.

Let's take a closer look at what this program is and what it means for businesses.

What is Temporary Full Expensing?

Temporary full expensing is a tax incentive program that allows eligible businesses to claim an immediate deduction for the full cost of eligible depreciating assets that are first used or installed ready for use from 7:30 pm AEDT on 6 October 2020, and acquired by 30 June 2023.

This means that businesses can deduct the full cost of eligible assets from their taxable income in the year they are purchased, rather than depreciating the cost over several years.

How does Temporary Full Expensing work?

As an example, a landscaping business with an annual turnover of $750,000 and a taxable income of $220,000 will be subject to paying the Australian company tax rate of 25% - in this case, the total tax liability is $55,000 ($220,000 x 25%).

If the company purchases a new (or used) excavator costing $80,000 excl. GST the total value of the purchase can be deducted from the company’s net taxable income during that financial year. Taxable income will be reduced to $140,000 ($220,000 - $80,000) resulting in a reduced tax bill of $35,000 ($140,000 x 25%), or a saving of $20,000.

Eligible assets include new and used assets such as machinery, equipment, and vehicles. The program also includes improvements made to existing assets that cost less than $100,000.

To be eligible, businesses must have an aggregated turnover of less than $5 billion, or less than $50 million if using the incentive to claim on second-hand equipment.

What does the end of the program mean for businesses?

The end of the temporary full expensing program means that businesses will no longer be able to claim an immediate deduction for eligible assets purchased after 30 June 2023. Instead, they will need to depreciate the cost of the asset over several years. This could have an impact on cash flow for some businesses, as they will not receive the full tax benefit upfront.

It is important for businesses to plan ahead and consider the potential impact of the end of the program on their finances. If your business needs to purchase new assets, it may be worthwhile considering doing so before 30 June 2023 to take advantage of the program.

It is always a good idea to seek advice from a qualified tax professional to ensure that you are making the most of the tax incentives available to your business.