Temporary Full Expensing — Complete Guide for Businesses

Temporary full expensing (also called full expensing or the temporary immediate deduction) lets eligible businesses deduct the full cost of qualifying depreciating assets in the year they are first used or installed ready for use. It's an accelerated depreciation measure designed to improve cash flow and encourage investment — but timing, ownership and documentation are critical. This guide explains eligibility, qualifying assets, timing rules, practical examples and compliance tips to help you decide whether to claim the concession.

What is temporary full expensing?

Temporary full expensing is a time-limited tax concession that allows eligible businesses to immediately deduct the cost of eligible depreciating assets in the year they are first used or installed ready for use, instead of claiming deductions over the asset's effective life. The policy accelerates depreciation deductions, improves after-tax cash flow and simplifies tax treatment for many asset purchases.

At a high level:

• You can deduct the full purchase price of an eligible depreciating asset up front.
• The deduction is available only where acquisition and first use or installation occur within specified legislative dates.
• It applies to many types of tangible depreciating assets, subject to exclusions and special rules for second-hand assets, capital works and certain intangibles.

Check the ATO for current dates and thresholds: https://www.ato.gov.au/business/depreciation-and-capital-allowances/

Who is eligible?

Eligibility depends on your entity type and tests such as aggregated turnover and alternative tests where applicable.

Eligible entities typically include:

• Companies, trusts, partnerships and sole traders that meet the aggregated turnover threshold or alternative tests.
• Consolidated groups (special consolidation rules apply).
• Entities must ensure only one claim is made for the same asset across related entities.

Key eligibility tests:

• Aggregated turnover threshold: your aggregated turnover must be under the legislative threshold for the concession period. Check the ATO for current thresholds.
• Alternative tests: special pathways may apply where aggregation rules would otherwise exclude an entity — refer to ATO guidance.

Entity-specific notes:

• Trusts: trustees claim the deduction for trust assets.
• Partnerships: the partnership claims on its return.
• Consolidated groups: head company rules and consolidation can affect entitlement.
• Related-party acquisitions: the ATO scrutinises non-arm's-length dealings and valuations.

For practical finance options when purchasing assets, see asset finance or equipment finance.

Which assets qualify — inclusions and exclusions

Temporary full expensing applies to depreciating assets first used or installed ready for use within the eligible period. The asset must be used for a taxable purpose and meet Division 40 definitions where applicable.

Common inclusions:

• Tangible depreciating assets: machinery, plant, commercial fit-outs, IT hardware, specialised vehicles (subject to vehicle rules).
• New and (in many cases) second-hand depreciating assets if acquisition and first use or installation are within the concession period.
• Items normally subject to decline in value under Division 40.

Common exclusions:

• Capital works (Division 43) such as buildings and structural improvements.
• Trading stock and inventory.
• Certain intangibles (some software treatments vary — check the ATO).
• Assets not used for a taxable purpose.
• Assets owned by a lessor under an operating lease (the owner typically claims depreciation).

Second-hand assets:

• Eligible if acquired and first used or installed in the concession window and the purchaser meets eligibility tests. Related-party second-hand deals attract higher scrutiny.

Related topics: finance lease, novated lease, chattel mortgage, hire purchase, operating lease, asset finance, depreciation

How the deduction is worked out

Mechanics:

• The full cost of an eligible depreciating asset (generally the GST-exclusive cost for tax) is deductible in the year of first use or installation for a taxable purpose.
• For assets used partly for private purposes, only the business proportion is deductible.
• Small business pooling rules may be affected — assets that would otherwise enter the small business pool may be fully expensed instead if eligible.

GST treatment:

• GST-registered businesses use the GST-exclusive cost for income tax. GST claims are handled separately via BAS.

Disposals and balancing adjustments:

• If you dispose of an asset after claiming a full deduction, disposal proceeds may be assessable as a balancing adjustment in the year of disposal.

Short worked examples:

1. New machine

• Purchase: $10,000 (GST exclusive). First use in concession year.
• Deduction: $10,000 in year 1. If later sold for $10,000, include $10,000 as assessable on disposal.

2. Part-use asset

• Purchase: $10,000; business use 80%.
• Deduction: $10,000 × 80% = $14,000.

3. Pooling

• Assets that would normally enter a small business depreciating pool can be fully expensed under the concession if eligible.

For more on balancing adjustments and pooling, see the ATO: https://www.ato.gov.au/business/depreciation-and-capital-allowances/

Key dates and timing rules

Timing is often the decisive factor in eligibility. Confirm exact start and end dates with the ATO as legislation may change.

Important concepts:

• Acquisition date: the date you entered the contract to acquire the asset.
• First use or installed ready for use: the event that triggers the deduction — when the asset enters service for a taxable purpose.
• Transitional rules: some contracts signed before the concession start may qualify under look-back or transitional provisions — check detailed ATO rules.

Simplified timing summary:

Always verify dates on the ATO page: https://www.ato.gov.au/business/depreciation-and-capital-allowances/

Interaction with other depreciation and small-business concessions

Temporary full expensing interacts with other concessions:

• Instant asset write-off: both provide immediate deductions but differ by threshold, timing and eligible entities. Compare which concession applies to each asset and period — see instant asset write-off.
• Small business simplified depreciation (pooling): choosing full expensing for an asset removes it from future pool calculations.
• Low-value and software concessions: compare which concession gives correct treatment; avoid double claiming.
• Leasing and hire arrangements: where you do not own the asset (operating leases), the lessor claims depreciation. For finance-style arrangements, ownership determines entitlement — see finance lease and chattel mortgage.

For more on tax concessions, consult the ATO guidance.

How to claim and complete tax return labels

Step-by-step claiming process:

1. Confirm eligibility (entity tests and asset qualification).
2. Determine the tax cost (use GST-exclusive amount).
3. Record the first use or installation date and retain supporting evidence.
4. Include the deduction in the depreciation and capital allowances schedules on your tax return (follow your tax software and ATO labels).

Accounting entries (consumer-focused guidance):

• Many small businesses record the purchase on their management accounts and then record a tax adjustment in the tax schedule to reflect the immediate deduction. Example simplified approach:
  • Record purchase as normal on management accounts (Asset / Bank).
  • Record a tax-only adjustment or tax depreciation entry to reflect the immediate deduction in tax records.
• Work with your accountant or BAS agent to ensure management accounts, tax books and GST treatment reconcile.

Seek your tax software guidance or accountant for the exact tax return label to use.

Internal resource: See good business record keeping practices.

Record-keeping, compliance and audit focus

Good records reduce audit risk. The ATO monitors timing, ownership and business use.

Documents to retain:

• Tax invoices and contracts showing date, vendor and price.
• Evidence of first use or installation (photos, delivery or commissioning notes).
• Usage logs for part-use assets.
• Finance or lease agreements.
• Proof for second-hand purchases (receipts, vendor details).
• Board minutes or approvals for material purchases.

Red flags for audit:

• Large clusters of purchases around concession start dates lacking commercial purpose.
• Related-party transactions at non-arm's-length prices.
• Missing proof of first use or installation.
• Double claiming the same cost under different concessions.

Consequences:

• Disallowance of deductions, shortfall assessments, interest and penalties for serious or negligent misstatements.
• The ATO may require amendments to prior returns where claims are incorrect.

Authoritative guidance:

• ATO — Depreciation and capital allowances: https://www.ato.gov.au/business/depreciation-and-capital-allowances/
• ASIC — Small business information: https://asic.gov.au/regulatory-resources/small-business/

Opting out and revising claims

Opting out:

• In some situations you may elect to opt out of an immediate deduction and use standard depreciation. Check legislation for whether opt-out is available and whether the election is irrevocable for that asset.

Revising claims:

• If you discover an error, you can generally amend your tax return within statutory time limits. Keep documentation for the amendment and seek advice if the change is material.

Consult the ATO and your tax adviser before electing an opt-out or amending significant claims.

Common mistakes and practical tips

Top errors:

• Incorrect timing: claiming when the asset was not first used or installed in the concession period.
• Double claiming: using more than one concession for the same asset.
• Incorrect ownership: claiming when another party owns the asset.
• Poor documentation: no proof of installation or business use.

Practical tips:

• Timestamp photos or commissioning certificates when an asset enters service.
• Maintain a master asset register showing which assets were expensed.
• Keep vendor details and receipts for second-hand purchases.
• Coordinate claims within related groups to avoid duplicate claims.
• Use clear tax-only journal entries to reconcile tax and management accounts.

Related finance and ownership guidance: finance lease, chattel mortgage, asset finance

Worked examples

Example 1 — Small business buys equipment (new):

• Scenario: Purchase workshop equipment for $15,000 (GST exclusive). First use on 1 March in the concession year. Eligibility tests met.
• Tax outcome: Immediate tax deduction of $15,000 in that income year.
• If later sold for $10,000, include $10,000 as assessable on disposal (balancing adjustment).

Example 2 — Second-hand asset:

• Scenario: Acquire a second-hand tractor for $10,000 (GST exclusive) from an unrelated seller and first use it within the concession period.
• Tax outcome: Immediate deduction of $10,000. Retain purchase receipt and proof of first use.

Example 3 — Opting out:

• Scenario: Asset worth $100,000 — you prefer to defer deductions because you expect higher future income.
• Effect: If opt-out is permitted, claim standard depreciation over the asset's effective life. Elections can be irreversible for the asset — get advice before deciding.

FAQ

Key takeaways

Temporary full expensing is a valuable tax concession for eligible businesses with qualifying depreciating assets. Timing and ownership are critical: ensure acquisition and first use occur within the legislated window, document all transactions thoroughly, and confirm eligibility tests are met before claiming. If you are uncertain about complex situations—related-party transfers, consolidation, or large capital programs—obtain tailored advice from a tax professional to ensure compliance.

Further reading

• ATO — Temporary full expensing: https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/temporary-full-expensing
• ATO — Depreciation and capital allowances overview: https://www.ato.gov.au/business/depreciation-and-capital-allowances/
• Income Tax Assessment Act 1997 (legislation): https://www.legislation.gov.au/Series/C2004A05148

This article is general information only and is not legal, tax or financial advice.