FAQs: Temporary full expensing

To say that the beefed-up ‘instant asset write-off’ scheme introduced in 2020 was a success would be an understatement.

Since the measure was first announced back in March 2020, dealers around the country have reported a massive spike in sales and stock shortage as a result of consumers flocking to take advantage of the never-before-seen incentive before it runs out.

As a result, the government has extended the measure several times and introduced a ‘temporary full expensing’ (TFE) scheme in October 2020, which is essentially an extension of the popular instant asset write-off incentive.

As part of the 2021 budget delivery in May this year, the federal government announced a further 12-month extension of the TFE program, which now has an end date of June 30, 2023.

In a nutshell, TFE allows eligible businesses to immediately deduct the full cost of assets for their businesses, such as a new ute for a tradie or new piece of machinery for a caravan factory.

It is important to note that this does not mean the government is covering the entire cost of your purchases. It simply reduces the amount of tax you have to pay.

What the program does is allow you to claim the deductions in one lump sum, instead of having to claim them over several years.

What is the limit for the temporary full expensing scheme?

Unlike the instant asset write-off, which had a limit of $150,000, there is no value threshold for this scheme. As long as the purchase meets the criteria, you should be eligible to claim a full deduction come tax time.

How do I qualify?

If your business turns over less than $5 billion a year, then you qualify. The item/s must be purchased and first used or installed ready for use at or after 7.30pm AEDT October 6, 2020, and before June 30, 2023.

Does it apply to both new and used assets?

It depends on the size of your business. If you are a business with turnover under $5 billion but over $50 million, then you can only claim a full deduction for brand-new assets.

But if you are a business with a turnover of less than $50 million, you can claim the full amount of both new and used assets.

Does temporary full expensing apply to cars?

Technically, no, if your car is a passenger car. According to the ATO, the definition of a ‘car’ for tax purposes is a motor vehicle designed to carry fewer than nine passengers and a load of less than one tonne.

If you bought a car for your business that falls under that category after October 6, 2020, then a $59,136 limit applies for the 2020-21 financial year. For the 2021-22 financial year, that limit increases to $60,733.

However, if you are purchasing a light commercial vehicle such as a ute, van or truck that do not meet the passenger car criteria, then the good news is you can deduct the full cost of the vehicle come tax time.

What other purchases are excluded?

A few other items. The ATO has listed several assets which are ineligible for the temporary full expensing measure, but can still be deducted using other methods including:

• Assets allocated to a low-value pool (generally items costing less than $1000) or a software development pool.

• Certain primary production assets such as water facilities, fencing, horticultural plants or fodder storage assets. If you are a small business entity, you can deduct these items using the simplified depreciation rules.

• Buildings and other capital works for which you can deduct amounts under Division 43.

• Assets that are not located in Australia.

What if I buy multiple eligible vehicles/machinery?

There is no limit to how many assets you can write off, so if you buy three new utes to add to your fleet, you can write them all off in the year you purchased them.

Can I claim for any modifications and improvements to my vehicles?

Yes, you can. For example, if you bought a ute that qualifies for TFE and purchase a tub liner or install a bull bar at a later stage, you can claim a deduction on the full cost of the vehicle as well as the cost of the accessories plus installation.

Can I claim the full cost of a vehicle that I will use for both business and personal use?

You can only claim the proportion that will be used for business purposes. For example, if you purchase a work truck for $100,000 but will only be using it 50 per cent of the time for business purposes, then you can only claim a deduction of $50,000.

Note that these FAQs do not constitute financial advice and you should speak to your tax accountant if you have specific questions about your circumstances.