If you’ve been looking to purchase plant or equipment for your business such as a new vehicle or machinery, there are some government tax concessions that may be available to you. With the ATO announcing the end of the current “instant asset write-off” scheme, there are still some temporary full expensing benefits you can access up to 30 June 2023.

If your business meets the eligibility criteria, you may be able to claim an immediate deduction for the full cost of eligible assets purchased for your business, bringing forward a tax deduction from future years. This is a big consideration for any business owners that are on the fence about upgrading their plant and equipment as it can result in income tax savings as well as a positive cashflow benefit.

Who is eligible?

Businesses with an aggregate turnover of less than $5 billion are eligible for temporary full expensing, however corporate tax entities with a greater turnover may be eligible if they meet the alternative income test.

What assets can I claim?

You can access the immediate deduction on any eligible asset, new or second-hand and while there is no general limit on the cost of the assets you can claim, there are costs limits on specific assets such as a passenger vehicle which may apply. Further restrictions are also in place for small businesses using the simplified depreciation method.

Deductions for the cost of improvements to your eligible existing assets can also be accessed, however this doesn’t include any fixtures or fittings.

You can visit the ATO for the full list of assets & exclusions.

How can I claim the temporary full expensing deduction?

You can claim the deductions in your tax return for the relevant income year, and unlike the “instant asset write off” method, temporary full expensing offers far more flexibility with the option to opt in or out of the scheme on an asset-by-asset basis if not applying the simplified depreciation method.

What are some of the benefits and drawbacks or temporary full expensing?

You can generate some great income tax savings by claiming temporary full expensing deductions in addition with the GST refunds due on the purchase of eligible assets.

There is also potential to reduce ongoing service and maintenance costs by trading or selling old machinery or vehicles and replacing it with new Plant that is covered by warranties, as well as the possible cashflow benefit of converting the equity in the assets to cash.

The downside is that you will no longer be able claim any depreciation deductions for those assets in future periods and you may need to enter into a new finance agreement to purchase new equipment.

Case Study

Andy the Landscaper operates a successful landscaping business.  His profit for the current financial year will be $200,000 (before tax).  Andy has an old bobcat that he’s looking to upgrade as it has been costing him more in maintenance and repairs.  Andy also needs a new work vehicle for himself and his foreman as both vehicles are out of warranty and are beginning to look a little old and tired as well as requiring more regular and expensive maintenance and servicing.  As Andy has had each item of Plant & Equipment for a number of years and he has paid down his loans on each item, he has generated some equity in the assets.  Andy is registered for GST so he can claim a GST credit on the purchase of each new asset.

Andy's Landscaping Pty Ltd
Net Profit for 2023 Financial Year	$200,000
Total Income Tax Payable at 25%	$50,000
Value of Existing Equipment	Loan on Asset	Sale Value	Equity
Andy’s Vehicle	$25,000	$30,000	$5,000
Foreman Vehicle	$20,000	$25,000	$5,000
Old Bobcat	$15,000	$20,000	$5,000
Total	$60,000	$75,000	$15,000
	GST on Sale	$6,818.18
Cost of new equipment
New Vehicle for Andy	$55,000
New Vehicle for Foreman	$55,000
New Skid Steer Bobcat	$65,000
Total Purchase Value	$175,000
GST	$15,909.09
Net profit Analysis
Net Profit for 2023 Financial Year	$200,000.00
ADD: Gain on sale	$68,181.82
LESS: Tax Deduction on purchase	-$159,090.91
Net profit after purchase	$109,090.91
Tax Payable at 25%	$27,272.73
Tax Benefits
Income Tax Saving	$22,727.27	* $50,000 less $27,272.73
GST Refund	$9,090.91	* $15,909.09 less $6,818.18
Total Tax Benefits	$31,818.18

As you can see from the above example, by realising the equity in the existing Plant & Equipment and purchasing three new assets, Andy can generate a positive cashflow benefit for his business equal to $46,818.18. 

The cashflow benefits are summarised below:

Equity Released from sale of assets	$15,000.00
Add Total Tax Benefit	$31,818.18
Total Cashflow Benefit	$46,818.18

By utilising the ‘Temporary Full Expensing’ rules Andy has managed to improve his cash position in his business by $46,818.18.

To ensure a short term cashflow burden is not created, it’s imperative that the finance agreements that are undertaken to purchase the new Equipment are on essentially the same terms as the incumbent loan agreements.  If better terms, i.e. lower monthly repayment or interest rate can be achieved, there is a smaller associated benefit to be derived.

Is the temporary full expensing method right for my business?

There are a number of ways to calculate asset depreciation and while temporary full expensing may generate some temporary cashflow for your business, it may not be the right long-term method for your circumstances. It’s important to consult with your trusted adviser to ensure you maximise your business cashflow with depreciation deductions.

Reach out to our friendly team to arrange a discussion. Based on the Gold Coast, we specialise in providing unrivalled tax, accounting, and business advisory services.