Full Expensing of Assets Explained

The Government has announced a temporary measure to allow businesses to claim an immediate deduction for the full cost of eligible capital assets.

Businesses with an aggregated annual turnover up to $5 billion can now deduct the full cost of eligible assets that are acquired and first used by 30 June 2022. This method is called ‘full expensing’ and is available to most Australian businesses.  It is basically an evolution of the instant asset write-off.

We have set out a summary of these rules below, which vary depending on the purchase date (and cost) of the asset.

At Thorntons we will be applying these measures so as to achieve the best tax-outcome for clients.

This may involve not only the full expensing of asset purchases, but also in some cases deducting the entire balance of the small business pool at the end of the financial year.  This could result in losses for the 2020/21 year.

An important amendment to the rules was announced recently by the Treasurer (but not yet legislated), which will allow businesses to apply the measures on an asset-by-asset basis, rather than for all assets.  We will provide further details once the legislation has been passed.

For simplicity, we have only included the rules for businesses with a turnover of $10 million or less.  Separate rules apply to businesses with a turnover over $10 million.

Key dates:

There are some key dates to be aware of.

  • 12 March 2020 – The government announced the enhanced instant asset write-off and Backing Business Investment (BBI) incentive.
  • 6 October 2020 – Full expensing policy was announced in the Federal Budget.
  • 30 June 2022 – the last date businesses can take advantage of full expensing.

Brand-new assets

Purchase Date Cost Treatment
12/3/2020-6/10/2020 < $150,000 Instant write off when installed before 30 June 2021.
  > $150,000 Depreciated using accelerated rates under the BBI incentive.
7/10/2020-30/6/2022 No cost limit Immediate write-off the full expense of eligible assets

 

Second-hand assets

Purchase Date Value Treatment
12/3/2020-6/10/2020 < $150,000 Instant write off when installed before 30 June 2021.
  > $150,000 Depreciated in simplified small business pool for businesses with a turnover of up to $10 million
7/10/2020-30/6/2022 No cost limit Immediate write-off the full expense of eligible assets