Technical Update:

Expansion of the Full Expensing of Capital Assets

25 November 2020

The Federal Treasurer has recently announced expanded access to the temporary full expensing of capital assets enabling more large Australian-based businesses with a track record of investing in Australia to qualify for the measure. The proposed legislation is expected to allow Australian companies to access the incentive by disregarding foreign parent’s and/or foreign associates’ turnover in relation to the $5 billion aggregated turnover. Businesses will also be allowed to opt-out of temporary full expensing on an asset-by-asset basis.

New Alternative Test for Full Expensing of Capital Assets

To qualify for the expanded eligibility rules, companies must satisfy a new alternative test. Under the new test, companies must have:

  • less than $5 billion in total statutory and ordinary income (excluding non-assessable non-exempt income) in either the 2018-19 or 2019-20 income year; and
  • invested more than $100 million in tangible depreciating assets in the period 2016-17 to 2018-19.

The proposed change will mean businesses with an aggregated turnover of more than $5 billion due to the income of an overseas parent or associate will now be able to qualify for the incentive provided they also meet the above additional investment requirements.

Original full expensing rules 

The original rules which became law on 14 October 2020, allow businesses with an aggregated turnover less than $5 billion to deduct the full cost of eligible depreciable assets of any value in the year they are first held, and first used or installed ready for use for a taxable purpose from 6 October 2020 to 30 June 2022. Businesses will also be able to deduct the full cost of improvements to these assets and to existing eligible depreciating assets made during this period.

Opting out of full expensing on an asset-by-asset basis  

In addition, businesses will also be allowed to opt-out of temporary full expensing and the backing business investment incentive on an asset‑by‑asset basis. This change will provide businesses with more flexibility in respect of these measures, removing a potential disincentive for them to take advantage of these measures.