As part of the 2020–21 Budget, the government announced it would support businesses and encourage new investment, through a temporary full expensing incentive.
This measure is now law.
Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of new eligible depreciating assets. Corporate tax entities unable to meet the $5 billion turnover test can still be eligible for temporary full expensing under an alternative test. The eligible new assets must be first held and first used, or installed ready for use for a taxable purpose, between 7:30pm AEDT on 6 October 2020 and 30 June 2022.
For businesses with an aggregated turnover of less than $50 million, temporary full expensing also applies to the business portion of eligible second-hand depreciating assets.
Businesses can also deduct the business portion of the cost of improvements to eligible depreciating assets (and assets acquired before 7.30pm AEDT on 6 October 2020 that would otherwise be eligible assets) if those costs are incurred between 7.30pm AEDT on 6 October 2020 and 30 June 2022.
Businesses can choose not to apply temporary full expensing on an asset-by-asset basis.
The measure also extends the time by which assets that qualify for the existing enhanced instant asset write-off incentive that applies to small and medium sized businesses. These assets must be first used or installed ready for use for a taxable purpose by 6 months, to 30 June 2021.
Small businesses (with aggregated turnover of less than $10 million) choosing to apply simplified depreciation rules can deduct the balance of their general small business pool for income years ending between 6 October 2020 and 30 June 2022. The ‘lock out’ rules that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out of the regime are suspended until 30 June 2022.
Temporary full expensing extension
On 11 May 2021, as part of the 2021–22 federal Budget, the Australian Government announced that it will extend the temporary full expensing incentive for 12 months until 30 June 2023.
This extension is not yet law.
Loss carry-back extended by one year
Under the temporary, COVID-driven restoration of the loss carry-back provisions announced in the previous Budget, an eligible company (aggregated annual turnover of up to $5 billion) could carry back a tax loss for the 2019–2020, 2020–2021 or 2021–2022 income years to offset tax paid in the 2018–2019 or later income years.
The Government has announced it will extend this to include the 2022–2023 income year. Tax refunds resulting from loss carry-back will be available to companies when they lodge their 2020–2021, 2021–2022 and now 2022–2023 tax returns.
This is intended to help increase cash flow for businesses in future years and support companies that were profitable and paying tax but find themselves in a loss position as a result of the COVID-19 pandemic. Temporary loss carry-back also complements the temporary full expensing measure by allowing more companies to take advantage of expensing, while it is available.
Carrick Aland has applied temporary full expensing and the loss carry back to our clients’ businesses in 2021 and have found it not only to be useful but also beneficial for generating refunds. Contact our team in Dalby, Toowoomba or Chinchilla on 07 4669 9800.