Immediate Write-Off For Individual Small Business Assets & Temporary Full Expensing

Temporary Full Expensing allows businesses to claim an immediate deduction for the business portion of the cost of an asset being eligible plant , equipment and motor vehicles in the year it is first used or installed ready for use for a taxable purpose. For the 2022-23 income year, a business can claim an immediate deduction for the business portion of the cost of

  • Eligible new assets first held, first used or installed ready for use for a taxable purpose between 7.30pm AEDT on 6 October 2020 and 30 June 2023
  • Eligible second-hand assets for businesses with aggregated turnover under $50 million eligible depreciating assets using the simplified depreciation rules (only for small businesses with aggregated turnover of less than $10 million and less than $2 million for previous income years) and the balance of their small business pool

If you are a small business entity that chooses to use the simplified depreciation rules, temporary full expensing rules apply with some modifications.

You can’t opt out of temporary full expensing for assets that the simplified depreciation rules apply to.
You must immediately deduct the business portion of the asset’s cost for assets you start to hold, and first use (or have installed ready for use) for a taxable purpose from 7.30pm (AEDT) on 6 October 2020 to 30 June 2023. You don’t add these assets to your small business pool.

You also deduct the balance of the small business pool at the end of an income year ending between 6 October 2020 and 30 June 2023.

Here are some key points to consider:

  • For the instant asset write off the asset can be new or second hand.
  • To be eligible, the asset must be purchased by a business turning over less than $50m or $500 million after 12th March 2020.
  • The amount must be under $150,000 (depending on date of purchase – see table above as it could be $30K or $25K or $20K) exclusive of GST (i.e. $165,000, $33K, $27.5K or $22K including GST)
  • If you borrow to purchase the asset, the asset is still eligible.
  • The asset must be installed and ready to use by the deadline.
  • To claim the write off on a motor vehicle you will need to have a valid log book and claim only that percentage of the cost as an immediate write off.
  • If you purchase a car for your business, the instant asset write-off is limited to the business portion of the car limit of $64,741 for the 2022/23 income tax year.
  • Any attempt to manipulate invoices etc. will attract the ATO's use of the anti-avoidance rules, thereby eliminating the write off.
  • If your business has a small profit or even a loss, the write off will be of little or no benefit in the current year (losses are not refundable but can be carried forward to the next year).
  • Building structural improvements are not eligible for the instant write off.
  • If your pool balance at the end of the year is less than $30,000 before applying any other depreciation deduction, the entire pool balance can be written off ($150,000 if purchased post 12th March 2020 and before 31st December 2020).
  • If your business is not a ‘Small Business Entity’ you will need to depreciate all assets purchased over $1,000. Any assets purchased for $1,000 or less can be written off immediately.
  • Accelerated Depreciation Deductions
    Newly acquired depreciating assets valued at more than $30,000 (or $150,000 post 12th March 2020) and not applied to the instant asset write off deduction can be added to the general business pool. As part of the backing business incentive, an accelerated depreciation deduction of 57.5 percent for the business portion of the new depreciating asset applies for the cost of an asset on installation from 12th March 2020 to 30th June 2023 and existing depreciation rules apply (15 per cent for the first year and 30 per cent for subsequent years) to the balance of the asset’s cost and for subsequent years. There is no limit to the cost of a qualifying depreciating asset eligible for this concession, but the asset must be new and not second hand.

Other 2023 Year End Tax Planning Opportunities

Disclaimer: This newsletter contains general information only and no responsibility can be accepted for errors, omissions or possible misleading statements. It is not designed to be a substitute for professional advice and does not take into account your individual circumstances. Therefore, no responsibility can be accepted for any action taken as a result of any information contained in this newsletter.