Take Advantage of Tax Incentives – Temporary Full Expensing of Depreciating Assets (TFEDA) in 2022

Do you have equipment on order or are you looking to purchase new gear soon? Take Advantage of Tax Incentives.

Temporary Full Expensing of Depreciating Assets (TFEDA)

• The Government will support businesses by enabling them to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2023.
• Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets. For SMEs (with turnover < $50m pa), full expensing also applies to second-hand assets.
• Businesses (turnover $50 – $500m pa) can still deduct 100% of eligible second-hand assets costing < $150K ex GST that are purchased by 31 December 2020 and first used or installed by 30 June 2023.
• Small businesses (turnover < $10m pa) can deduct the balance of their simplified depreciation pool at the end of 2021, 2022 and/or 2023. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.

Below is a plain speak table & summary of the new Loss Carry Back opportunities as announced in the Federal Government’s 2020 Budget on 6th October 2020.

Temporary Loss “Carry Back” opportunities

• The Government will allow eligible companies to carry back tax losses from the 2019-20, 2020-21, 2021 – 22 or 2022-23 income years to offset previously taxed profits in 2018-19 or later years.
• Corporate tax entities with turnover < $5 billion pa can apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The tax refund would be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit.

Franking Account Deficit?

• That is, the loss carry-back tax offset cannot > value of past taxes paid that have not already been distributed to shareholders as franking credits via Dividends
• This design aims to avoid providing a double benefit by preventing the past payment of tax. This double benefit could otherwise arise because shareholders received an imputation credit in relation to company tax that, because of loss carry-back, the company had effectively no longer paid.
  • The tax refund will be available on election by eligible businesses when they lodge their tax returns for 2020-21, 2021-22 & 2022 -23 income years.
  • Currently, companies must carry losses forward to offset profits in future years. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

For simplified information on Temporary Full Expensing of Depreciating Assets & Loss Carry Back, visit our 2021 TFEDA blog post here.