The Australian Government introduced temporary full expensing as part of the JobMaker plan to boost economic growth and create jobs throughout the COVID-19 pandemic.

Here, BMT Tax Depreciation outlines what temporary full expensing is, explains business and asset eligibility and shows just how lucrative it can be once applied using a newly upgraded Gold Coast resort as an example.  

What is temporary full expensing?

Under temporary full expensing eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready to use for a taxable purpose. This incentive can help businesses significantly boost their cash flow.

Eligibility

Businesses with an aggregated turnover of up to $5 billion or corporate entities that meets the alternative income test can deduct the full cost of eligible assets that are purchased or first used by 30 June 2023.

Brand-new assets have different eligibility requirements for temporary full expensing than second-hand assets, including the date the asset was purchased, installed and first used.

Let’s have a look here:

Brand-new assets purchased from 12 March 2020 and before 7:30pm (AEDT) on 6 October 2020

If the brand-new asset costs less than $150,000 all business types up to $500 million in aggregated turnover can instantly write it off when it’s installed before 30 June 2021.

However, if the asset is above the $150,000 limit, businesses can only depreciate it using accelerated rates under the backing business incentive. Small business entities (SBE) must use the backing business incentive, but medium business entities (MBE) and large business entities (LBE) have an opt out option and can use the effective life rates.

Brand-new assets purchased after 7:30pm (AEDT) on 6 October 2020 and before 1 July 2023

Any business type with an aggregated turnover of up to $5 billion can write-off the full expense of eligible assets instantly, with no limit to the number of assets a business can claim in a single year.

It’s important to note if a low value pool is already in place, assets with a value between $100 and $1000 will need to be placed into the low value pool rather than being full expensed.

Second-hand assets purchased from 12 March 2020 and before 7:30pm (AEDT) on 6 October 2020

If the second-hand asset was valued below $150,000 all SBE, MBE and LBE (up to $500 million in aggregated turnover) can instantly write it off in that year’s tax return. The only requirement is that it’s installed by 30 June 2021.

For second-hand assets valued above $150,000, depreciation works based on the business’s aggregated turnover. SBEs can place the asset in their general small business pool, while MBEs and LBEs must depreciate the asset based on its effective life.

Second-hand assets purchased after 7:30pm (AEDT) on 6 October 2020 and before 1 July 2023

All SBE and MBEs can instantly deduct any eligible second-hand asset in the same financial year through full expensing.

It’s important to note here as well if a low value pool is already in place, assets with a value between $100 and $1000 will need to be placed into the low value pool rather than being full expensed.

LBEs with an aggregated turnover below $500 million could also instantly deduct the asset if it’s valued at less than $150,000. However, the asset must be purchased on or before 31 December 2020 and installed by 30 June 2021. If the asset’s purchase and installation dates don’t meet this timeframe, it must be depreciated based on its effective life.

Case study: Harbour Resort

‘Harbour Resort’ is a resort located on the Gold Coast. The resort was purchased in 2018 and is owner operated. Harbour Resort has 100 rooms, a restaurant and bar, function room, pool and outdoor bar.

In 2021 Harbour Resort upgraded its fit-out to prepare for increased guests once travel restrictions had eased.

The following indicates what upgrades were completed and the cost:

• Room furniture (100 rooms): $1,200,000
• Restaurant: $98,500
• Kitchen: $95,000
• Bar: $26,000
• Computer and telephone system: $6,699
• Outdoor furniture: $39,900
• Swimming pool assets: chlorinators and filtration assets: $13,500
• Total: $1,479,599

The following demonstrates the five-year cumulative depreciation deductions available in Harbour Resort from 2018 - 2022:

• Year 1 (2018): $1,969,791
• Year 2 (2019): $3,761,716
• Year 3 (2020): $2,957,014
• Year 4 (2021): $2,492,561
• Year 5 (2022): $3,027,586 (temporary full expensing applied)

By claiming depreciation and applying temporary full expensing Harbour Resort was able to write-off the full cost of all upgraded assets and received $1,479,599 in plant and equipment on top of $1,547,987 for capital works in year five.

Because Harbour Resort claimed depreciation and applied temporary full expensing, they improved their cash flow and were able to expand to accommodate business growth.

To take advantage of all available incentives it’s important to engage a specialist quantity surveyor like BMT Tax Depreciation for a tax depreciation schedule. BMT apply all relevant legislative requirements to every tax depreciation schedule we prepare to ensure claims are compliant and maximised.

To learn more about how to maximise deprecation claims with temporary full expensing call BMT on 1300 728 726 or Request a Quote.

The information provided in this article is of general use only and should not be used as a quote or advice. BMT recommend consulting an accountant before making financial decisions. Contact BMT for a specialised tax depreciation schedule.