What is temporary full expensing?

Normally you claim depreciation on a machine or vehicle a bit at a time over its effective life. Temporary full expensing brought the whole deduction forward: the full cost, generally the GST-exclusive amount for a GST-registered business, is deducted in the income year the asset is first used or installed ready for use for a taxable purpose. If the asset is partly for private use, only the business proportion is deductible.

Timing is the decisive factor. Both the acquisition, meaning the date you entered the contract, and the first use or installation had to fall within the legislated window, with transitional rules for some contracts signed earlier. Assets that would otherwise have gone into a small business depreciation pool could be fully expensed instead if they were eligible.

Eligibility depends on entity type and an aggregated turnover threshold, with alternative tests for some entities; companies, trusts, partnerships and sole traders can all qualify, and special rules apply to consolidated groups. Only one entity can claim for a given asset, and related-party deals, including second-hand purchases from related parties, are closely scrutinised by the ATO.

The asset must be a depreciating asset used for a taxable purpose: machinery, plant, commercial fit-outs, IT hardware and vehicles (subject to the vehicle rules). New assets were open to every entity the measure covered; second-hand assets only to smaller entities under a lower aggregated turnover test, so check the ATO's page for the tests. Excluded are capital works such as buildings and structural improvements, trading stock, some intangibles, and assets you do not own, such as equipment under an operating lease where the lessor claims the depreciation. Under a finance lease or chattel mortgage, the ownership rules decide who is entitled.

The deduction goes in the depreciation and capital allowances section of your tax return. Keep the tax invoice and contract, evidence of the first use or installation date such as a photo or commissioning note, usage logs for part-private assets, finance agreements and, for second-hand purchases, the seller's details. The ATO looks closely at purchases clustered around concession dates, missing proof of first use, and the same cost claimed under two concessions.

Temporary full expensing sits alongside the instant asset write-off and small business pooling: each has its own thresholds, dates and eligible entities, and you cannot claim more than one for the same asset. In some cases a business could opt out and depreciate an asset normally, but the election can be irrevocable for that asset, so check with your accountant before deciding.