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Australian businesses benefit from temporary full expensing

May 29, 2021

In what has been described as the “largest set of investment incentives” ever offered by treasurer Josh Frydenberg, businesses are able to write off the full value of any assets they purchase until June 2022

Temporary full expensing will cost the budget $26.7bn and $4.9bn over the next four years in a bid to create 50,000 jobs and are supplemented by a further $2bn on research and development tax concessions.

The shadow treasurer, Jim Chalmers, said Labor was “inclined to support” the business tax measures but would examine the detail to “make sure that’s the right and responsible way to spend so much money.”

Earlier, in his budget speech, Frydenberg said with eight out of 10 jobs being in the private sector it was the “engine of the Australian economy” – but during the COVID-19 crisis it “needs a kick-start.”

Who is eligible?

Businesses with a turnover of less than $5bn – all but the top 1% – are able to deduct the full cost of capital assets purchased and first used or installed by 30 June 2022. The measure expands the popular instant asset write-off, previously only available to small and medium businesses.

Small and medium businesses will also be able to apply “full expensing” to second-hand assets; businesses earning $50m to $500m will be able to do so for assets of less than $150,000.

Frydenberg said the measure was a “game-changer” that would “unlock investment” and “dramatically expand the productive capacity of the nation.”

To be eligible for temporary full expensing, the depreciating asset must be:

  • 1-New or second-hand 
    • If it is a second-hand asset, your aggregated turnover must be below $50 million
  • 2-First held by you after 6 October 2020
  • 3-First used or installed ready for use by you for a taxable purpose between 6 October 2020 and 30 June 2022.

How do I claim?

If your 2020-21 income year ends on or after 30 June 2021, you can choose to claim the temporary full expensing deduction in your tax return for that income year.

If your income year ends prior to 30 June 2021, you can find more information here

Tax offset

Under the new provisions, the government will allow companies to carry back losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018-19 or later years. This can generate a refundable tax offset that can be claimed this financial year or next.

The measure will be available to 1 million companies that employ up to 8.8 million Australians.

Frydenberg said that COVID-19 had turned “fundamentally sound businesses into loss-making businesses” and they should not have to wait to return to profitability to use those losses. “In order to keep their workers, these businesses need our help now,” the treasurer said. “They cannot wait years for the tax system to catch up.”

The measure will cost $4.9bn over four years, shrinking to $3.9bn over the medium term.

Research and development tax offset

The government will also make changes to the research and development tax offset “removing the cap on refunds, lifting the rate and rewarding those businesses that invest the most,” Frydenberg said.

Budget papers explain for small companies the $4m cap on cash refunds will be abandoned and the refundable R&D tax offset rate will be increased to 18.5% above the claimant’s company tax rate.

Larger businesses with annual turnover of $20m or more will benefit from a more generous non-refundable R&D tax offset.

The cap on R&D expenditure that can be claimed will be lifted from $100m to $150m per year.

Together the three business measures cost $33.6bn over four years, almost double the cost of income tax cuts provided to households ($17.8bn).

Budget papers suggest temporary full expensing and temporary loss carry-back could support $200bn of investment, and increase GDP by $10bn in 2021-22.

The government will also lift the threshold for a “small business” from turnover of $10m to $50m, a move increasing eligibility for some concessions and reducing “red tape.”

Are you planning an IT upgrade?

With the Government Incentives currently in place, there has never been a better time to refresh your IT infrastructure. Your IT partner can help you find the best solution to help you overcome your challenges and reach your business goals.

There’s still time to take advantage of the Instant Asset Write Off Scheme, ending on June 30th. Your IT partner can help with identifying your IT needs and aligning your business with the best fit solution. Contact them today to make sure your business takes full advantage of this limited time government incentive.

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