Full expensing of depreciating assets now available

Following the major announcement of full expensing of depreciating assets in the 2020-2021 Federal Budget, the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 was passed by the Federal Parliament. 

This Act introduced Subdivision 40-BB into the Income Tax Assessment Act 1997.  In many ways, this measure is the highlight of the Federal Government’s economic recovery plan and is expected to cost close to $27 billion over its period of application.

At a high-level, the full expensing measures (with no upper limit) apply as follows:

• Small businesses – up to $10 million turnover

Any balance remaining in their low value pool at year-end can be written off.  This was previously only available where the pool balance fell below $150,000, the pre-Budget instant asset write-off threshold.

• Small & medium businesses – up to $50 million turnover

All assets, including second-hand assets, acquired between Budget night and 30 June 2022, as long as they are used or held ready for use in a business by that date, are eligible for full expensing.

• Small, medium and large businesses – between $50 million and $500 million turnover

Generally, only new assets and improvements to existing assets, acquired between Budget Night and 30 June 2022 (again, as long as they are used or held ready for use in a business by that date) are eligible for full expensing.

Finally, full expensing is not available in respect of assets acquired under a commitment that was entered into before Budget night.  This includes entering into a contract or starting to hold the asset in another way.  An unexercised option, however, is not considered a commitment for these purposes.

• All businesses up to $5 billion turnover

New assets and improvements to existing assets, acquired between Budget Night and 30 June 2022 (again, as long as they are used or held ready for use in a business by that date) are eligible for full expensing.

As noted above, full expensing is not available in respect of assets acquired under a commitment that was entered into before Budget night.

Turnover	New Assets	Improvement to new assets and existing assets	Second-hand assets	Improvements to second-hand assets	Commitment before Budget night
Up to $10m	✓	✓	✓	✓	✓
$10m - $50m	✓	✓	✓	✓	✓
$50m - $500m	✓	✓	Some	✓	X
$500m - $5b	✓	✓	X	✓	X

It is important to remember that the turnover thresholds are examined on an aggregated basis, including the non-Australian turnover of non-Australian related parties.  This will be most relevant to Australian subsidiaries of global groups.

Other important matters to note in relation to the full expensing measures include:

• The provisions are only available to taxpayers that carry-on a business;
• The provisions only apply to depreciating assets (except software development pool assets and some primary production assets) and not to other assets such as capital works (e.g., buildings and structural improvements to buildings);
• The provisions must be applied if eligible (e.g., there is no choice to not apply full expensing and use the ordinary depreciation provisions);
• To be eligible, the assets must be located in Australia and principally used in Australia;
• While second-hand assets acquired by some businesses are not eligible for full expensing (as noted above), improvements to second-hand assets are eligible for full expensing; and
• Full expensing is not available in respect of assets that are disposed in the same year that they are acquired in.

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