EOFY Tax Deductions Small Business
A guide to identifying if EOFY tax deductions such as temporary full expensing apply to your small business.
Here’s a snapshot of the article’s insights:
The Federal Government has announced an extension to the instant asset write-off scheme, which allows for businesses with turnover of up to $10 million to deduct the full cost of eligible assets.
For the instant asset write-off, assets must be installed ready for use by 30 June 2024.
For temporary full expensing, assets must be first used or installed ready for use between 6 October 2020 and 30 June 2023.
Make sure the asset has a business purpose – don’t buy assets for the sole purpose of obtaining a tax benefit.
With a new financial year on the horizon, now is the time to familiarise yourself with changes to the temporary full expensing scheme, so your business can make the most of possible EOFY tax deductions.
What is the instant asset write-off?
As announced in last week’s Federal Budget for the 2023-2024 financial year, the instant asset write-off threshold has been temporarily increased to $20,000 and extended until the end of the 2023-2024 financial year. Small businesses with a turnover of up to $10 million will be able to immediately deduct the full cost of eligible assets that cost less than $20,000 and are first used or installed ready for use between 1 July 2023 and 30 June 2024. The benefit was announced as a boost to post-pandemic business recovery when it was introduced in 2020. According to the Australian Tax Office (ATO), the instant asset write-off does not apply for assets held or installed after 6 October 2020 – deductions for these assets are covered by temporary full expensing. The original instant asset write-off benefit “applied until 6 October 2020 on all eligible purchases up to $150,000,” explains Mark Chapman, Director of Tax Communications at H&R Block. “On that date, the cap was removed, so an immediate tax deduction was available for all eligible capital purchases without limit. That is temporary full expensing.”
What is temporary full expensing?
“Temporary full expensing applies to all eligible assets both acquired and first used or installed by 30 June 2023,” says Mark. “To be eligible, businesses must have an aggregated annual turnover of less than $5 billion. “Don’t forget, the purchase must be made by 30 June 2023 to qualify and the asset must actually be in use or available for use by that date. If the asset is purchased from 1 July 2023, the tax deduction is instead spread over a number of years.” The asset can be new or secondhand. According to the ATO, if you are ineligible for tax deductions under temporary full expensing you may still claim the depreciation deduction under instant asset write-off if the asset was purchased by 31 December 2020, and first used or installed ready for use before 30 June 2021.
Which assets are eligible for temporary full expensing?
Here’s a simple rundown of which assets may be eligible for temporary full expensing, depending on your business’s turnover:
| Turnover less than $50 million | Turnover between $50 million and $5 billion | |
|---|---|---|
| New assets | Eligible | Eligible |
| Second-hand assets | Eligible | Ineligible |
| Improvements to assets | Eligible | Eligible |
| Assets purchased or improvements made prior to 6 October 2020, or after 30 June 2023 (at time of writing) | Ineligible (with exceptions) | Ineligible |
| Primary production assets | Ineligible (with exceptions) | Ineligible |
| Assets not used or located in Australia | Ineligible (with exceptions) | Ineligible |
Should my business do some EOFY spending?
Mark suggests every small business consider making the most of the schemes, “particularly if the business is, for example, wanting to trade up its old laptops, purchase new office furniture or buy new cars for sales staff”. “Ideally, the business will have some spare cash to be able to afford the purchases,” he adds.
Is it a good idea to buy assets for the purpose of obtaining a tax benefit?
“This isn’t recommended,” advises Mark. “If you know that your business needs a particular asset, it makes sense to buy it before 30 June 2023 in order to maximise the tax deduction but bear in mind that you can’t claim back every dollar spent – just the tax on the purchase. “If you trade through a company, for instance, you can claim 25 cents for every dollar actually spent – leaving the company 75 cents in the dollar out of pocket! So, as we near the end of the financial year, don’t be tempted to buy things that the business doesn’t need purely to get the tax relief.” For more information on eligibility, assets and inclusions, visit the ATO website.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisers. Although every effort has been made to verify the accuracy of the information, we disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
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