Temporary Full Expensing
While the tax classification of depreciating assets has changed dramatically in recent years, the method for the 2022 tax year should be simpler. For many clients, the temporary full expensing measures will be the emphasis for the 2022 revenue year.
The temporary full expensing rules permit entities with an aggregated annual turnover of less than $5 billion to claim an immediate deduction for the cost of depreciating assets that begin to be held and are first utilised or installed ready for utilisation of a taxable purpose between 7:30 pm ACT time on October 6, 2020, and June 30, 2023.
The crucial point to remember about temporary full expensing, unlike previous quick asset write-offs, is that there is no limit to the cost of the asset when it comes to claiming an instant deduction.
While temporary full expensing was supposed to conclude on June 30, 2022, it has been extended for another year until June 30, 2023.
Whether the entity is classed as a Small Business Entity (SBE) or not, the essential conditions for claiming an instant deduction under the temporary full expensing regulations are slightly different.
The following conditions must normally be met by an SBE that is using the simplified depreciation rules in order to access the temporary full expensing rules:
- The entity must operate according to general principles.
- It must have total annual revenue of less than $10 million.
- For the relevant income year, it must select to use the simplified depreciation standards.
- The asset must be held on or after October 6, 2020, at 7.30 p.m. ACT time.
- On or before June 30, 2023, the asset must begin to be kept.
- In the relevant income year, the entity must begin to utilise the asset or have it installed and ready to use for a taxable purpose.
On or before June 30, 2023, the entity must begin using the asset or have it installed and ready to utilise for a taxable purpose.
Second Element Cost Deductions
Temporary full expensing also allows entities with an annual turnover of less than $5 billion to claim an immediate deduction for second element cost amounts incurred between 7:30 pm ACT time on October 6, 2020, and June 30, 2023, in relation to both temporary existing depreciating assets and full expensing assets.
The second component of a depreciating asset’s cost is the spending that has contr