Temporary full expensing of assets

While the tax benefit of an asset write off should never drive an investment decision, the timing of when those benefits arise should be taken into account

Buying a new asset outright with available funds or debt, or weighing up an operating lease vs hire purchase should be based on a comparison of the overall commercial costs/benefits and ownership features of each of these financing alternatives. The tax benefit attributable to an upfront full write off when purchasing an asset (or through a hire-purchase) can produce a cash tax timing benefit when compared to realising that same tax benefit over time through depreciation or otherwise. The ‘present value’ of this benefit should be taken into account as part of your financing considerations.

Temporary full expensing

Currently, eligible businesses can claim an outright deduction for the cost and installation of new and second-hand assets. The outright deduction is known as temporary full expensing.

Under current legislation, a business must hold and use a business asset before 30 June 2023 to qualify for temporary full expensing. Therefore, eligible assets need to be purchased, held and available for use by 30 June 2022 in order to claim a deduction in the 2022 year.

Where your turnover is less than $50 million, you may qualify for temporary full expensing for both new and second-hand assets. This means that, unlike previous rules on instant asset write-offs, no limit applies to the cost of an asset under the temporary full expensing rules.

Timing benefit only

It’s important to remember that claiming the upfront write off is essentially claiming all the tax depreciation for the asset upfront (i.e. it is a timing benefit only). This means that should you sell the asset in the future, any sale proceeds you receive will be fully taxable to your business in that year.

Something to remember for your cash flow forecasts…

Temporary full expensing of assets