Running a business can be challenging enough, without the added stress of making sure your equipment and machinery is up to the job. Deciding when to invest is tricky and could have a big impact on cash flow but with the Federal Government’s Temporary Full Expensing (TFE) incentive, now may be a great time to purchase new or used assets for your business.
Available until 30 June 2023, the TFE incentive expands on the previous Instant Asset Write Off (IAWO) scheme, which could have a significant positive impact on the cash flow of your business.
“The previous incentive, the Instant Asset Write Off, allowed businesses to claim immediate tax deductions of up to $150,000 for the purchase of new or second-hand plant and equipment assets, such as agribusiness machinery and equipment, vehicles, shop fit-outs and office equipment. The Temporary Full Expensing incentive applies to the same type of assets but removes the $150K cap and provides a longer timeframe to buy assets,” said Ken Hayes, Head of Asset Finance at BOQ Finance.
“So, if your business is eligible, it means that you can reduce the amount of tax you have to pay by claiming a tax deduction for the full value of a purchase, instead of claiming depreciation amounts over several years,” Ken said.
What is the Temporary Full Expensing (TFE) incentive?
The TFE is an accelerated depreciation incentive, which allows businesses to take a tax deduction upfront for the full cost of the assets in the financial year they were purchased and installed. Prior to the introduction of the incentive, it was only possible to claim a tax deduction for the cost over the effective life of the asset, which is typically over several years. By deducting the full expense in a single year, you can decrease your taxable income and the amount of tax you owe sooner, delivering an immediate cash-flow benefit to your business.
Businesses with an annual revenue of up to $5 billion are eligible for the incentive and can claim an immediate deduction on the full value of all new eligible, depreciable assets – there is no limit on the number or value of assets that can be claimed. SME businesses will also be able to claim full tax deductions on the cost of improvements made to existing eligible assets.
At the same time, SME businesses with up to $50 million in annual revenue will be able claim tax deductions for the full cost of eligible second-hand assets.
How does the incentive work?
If you are an eligible business, when you purchase any eligible new or second-hand depreciable asset, or pay for improvements to existing eligible assets, you can claim the full cost of the asset as a deduction on your 2020–21 or 2021–22 business tax return. This will reduce your taxable income and therefore the amount of tax you pay in that year.
What does your business need to qualify?
To be eligible, you must be a business entity (sole trader, partnership, company or trust) with annual revenue thresholds of:
- less than $5 billion to claim on new, eligible assets; and
- less than $50 million to claim on second-hand eligible assets.
Qualifying ‘eligible depreciable assets’ include assets purchased for business purposes including:
- Vehicles (up to the business car limit where applicable);
- Plant and equipment;
- Agribusiness equipment #;
- Office furniture and fittings;
- Computer, phones, externally purchased software; and
- Some components of office and shop fit-outs.
#Excludes some assets including horticultural plants such as grapevines, some primary production assets (such as water facilities, fencing, fodder storage assets) and capital works.
How long is the incentive valid?
The asset must be purchased and installed ready for use between 6 October 2020 (after 7.30pm) and 30 June 2023, in order to qualify for the immediate depreciation treatment.
As with any other small business tax matter, there are factors to take into consideration before you dive in and acquire any new business asset:
- If you use the asset for both business and personal purposes (for example a motor vehicle or computer), you must assess what percentage of the asset is for business use and only write off that portion of the asset’s cost as a business expense on your tax return;
- The deduction must be made in the financial year that you’ve used or installed the asset for business purposes; and
- You also need to be able to fund the purchase, so may need a small business loan or equipment finance solution to buy the asset.
For more information visit the Australian Tax Office’s website or speak to your accountant, a qualified tax accountant or one of BOQ Finance’s Equipment Finance specialists.
At BOQ Finance we have a team of Equipment Finance experts that can help you with finance solutions tailored to your business needs. Contact us today to find out more, email BOQF.DirectSales@boqfinance.com.au