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Temporary full expensing & other depreciation

temporary full expensing

Want to claim some extra expenses before 30 June 2021 – look into the temporary full expensing measures.

    Temporary full expensing enables your business to fully expense the cost of:
  • new depreciable assets
  • improvements to existing eligible assets, and
  • second hand assets in the first year of use.

Introduced in the 2020-21 Budget, this measure enables an asset’s cost to be fully deductible upfront rather than being claimed over the asset’s life, regardless of the cost of the asset. The Government plans to extend these rules to cover assets that are first used or installed ready for use by 30 June 2023.

Certain expenditure is excluded from this measure, such as improvements to land or buildings that are not treated as plant or as separate depreciating assets in their own right. Expenditure on these improvements would still normally be claimed at 2.5% or 4% per year.

The car limit will continue to place a cap on the deductions that can be claimed for luxury cars ($59,136 in 2020-21 and $60,733 in 2021-22).

From 1 July 2023, normal depreciation arrangements will apply and the instant asset write-off threshold for small businesses with turnover of less than $10 million is expected to revert back to $1,000.

Small business pooling

Small business entities (with aggregated annual turnover of less than $10 million) using the simplified depreciation rules can deduct the full balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they voluntarily leave the system are suspended.

Opt-out rules

Taxpayers can choose not to apply the temporary full expensing rules to specific assets, although this choice is not currently available to small business entities that choose to apply the simplified depreciation rules for the relevant income year.

Other write-offs

For assets purchased prior to 6 October 2021, the instant asset write-off applied depending on the aggregated turnover of the business and the value of the eligible asset.

Write-off thresholdsAggregated turnover under $10mAggregated turnover under $50mAggregated turnover under $500mAggregated turnover under $5bn
29 January 2020 – 2 April 2020$25,000
2 April 2020 – 11 March 2020$30,000$30,000
12 March 2020 – 31 December 2020$150,000$150,000$150,000
6 October 2020 – 30 June 2023unlimitedunlimitedunlimitedunlimited

If temporary full expensing or the instant asset write-off does not apply, accelerated depreciation might apply for assets purchased and installed ready for use between 12 March and 30 June 2021. Accelerated depreciation provides faster depreciation deductions for eligible assets. For entities that are using the simplified depreciation rules they would basically deduct 57.5% of the asset’s cost in the year the asset is first used. For entities that are not using the simplified depreciation rules they would deduct 50% of the cost or opening adjustable value of an eligible asset on installation. Existing depreciation rules apply to the balance of the asset’s cost

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Stuart Reynolds
is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, crypto and entrepreneurs.

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