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Temporary full expensing in Australia. What it means for businesses.

Roberto Efflandrin

27.06.23 (updated more than 1 year ago)

Read time 2 minutes

Following the Covid-19 pandemic, many Australian businesses struggled. The Australian Government, via the Tax Office (ATO), launched several initiatives to assist.

Temporary full expensing is one of these initiatives. What is it, does your business qualify, and how can you benefit?

We’ll answer all of that now. Read on.

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What is temporary full expensing in Australia?

Temporary full expensing is an opportunity for eligible Australian businesses to claim the full cost of a newly acquired asset in the first year.¹

In the past, an asset was depreciated over a fixed number of years and expensed accordingly. Temporary full expensing allows the asset to be fully expensed in the tax year of purchase.

There are some restrictions on asset types, and this option may only be suitable for some businesses.

What are the main timelines for using temporary full expensing?

The ATO introduced temporary full expensing in the year 2020, and it applies to any newly purchased assets after 7.30 pm on October 6 2020, until June 30, 2023.¹

You can make this claim in any of the income years 2020-21, 2021-22, 2022-23. It was originally scheduled to end on 30 June 2022 but was extended one more year.²

You’ll need to act fast. If your eligible business hasn’t claimed this deduction yet, you only have this financial year to apply.

Read more: Learn how to start your own business in Australia

Eligibility for temporary full expensing

Temporary full expensing isn’t for every Australian business. The criteria are as follows³:

A business with an aggregated turnover of less than $5 billion
a corporate tax entity that meets the alternative income test

Eligible assets

Assets that can be temporary full expensed are:

New assets purchased after 7.30 pm AEDT on 6 October 2020
First used or installed ready for use by you for a taxable purpose after 7.30 pm AEDT on 6 October 2020

Your business can only claim second-hand assets if it has an aggregated turnover of less than $50 million.

Exclusions with temporary full expensing

Some assets cannot be expensed under this program³:

Some primary production assets (usually fencing, horticultural plants, water facilities, or fodder storage assets)
Any assets allocated to a low-value pool or a software development pool
Any buildings or other capital works that you can deduct under Division 43
Assets that will never be located or used in Australia for business purposes

How to claim or Opt in and out of temporary full expensing in Australia

Your tax return is where you’ll notify the ATO if you’re opting in or out of temporary full expensing.

Opt in to temporary full expensing

There is an additional section on the 2020-21, 2021-22, and 2022-23 tax returns where you can claim temporary full expensing. You’ll need to apply specific labels to identify each asset.⁴

Check the temporary full expensing tax return label guide to identify which labels apply to your business and the asset(s) in question.

Opt out of temporary full expensing

To opt out, you also notify the ATO in your tax return.

If you’re unsure if you want to opt out and need more time to decide, you can submit a written application to the ATO stating the reasons for the extension.⁵

What to keep in mind

A final benefit of using temporary full expensing is that your business may be eligible for a refundable tax offset under loss carryback. This will apply if you make a tax loss as a result of claiming the immediate deduction.¹

Wise Business

Do you operate a business in Australia and wish to make international payments or provide customers with a local account number? Wise may be able to help.

The Wise Business account lets you make international transfers in over 40 currencies to 80 countries. Each transfer has a small upfront fee and is made using the transparent mid-market rate as you’d see on Google.

You also get local account details in 10 major currencies, including AUD.

Find out if Wise can help your business save money today.

Please see Terms of Use for your region or visit Wise Fees & Pricing for the most up-to-date pricing and fee information.

Sources:

Sources checked on: 21 June 2023

*Please see terms of use and product availability for your region or visit Wise fees and pricing for the most up to date pricing and fee information.

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