• New Wave Accountants

Temporary Full Expensing for Small Businesses in Australia

Recent research by the Council of Small Business Organisation of Australia (COSBOA) showed that small businesses generated 5.1 million jobs, nearly half of the private sector employment. This is one of the reasons why the small business sector is often viewed as the economy’s engine room.


There are almost three million small businesses in Australia, including primary production concerns that make up 96 per cent of all companies.


What Qualifies as a Small Business?


A small business is defined as a company having an annual turnover of less than $10 million from a tax perspective. However, the small business capital gains tax (CGT) concessions define it as a business with a turnover threshold of only $2 million.


Since small businesses benefit from various tax concessions, some companies split activities to enter the under $10 million thresholds to acquire the same benefits. The law stipulates that turnover has to be calculated from the aggregated amounts or the annual turnover of every related or affiliated business to stop such companies.


Temporary Full Expensing for Small Businesses


In an effort to demonstrate the importance of small businesses for the Australian economy, the government gives this sector a break on a range of tax matters. One of them is temporary full expensing (TFE).


Still, it is only one component of the government’s generous package of reliefs meant for businesses to invest tax effectively in new capital assets. If you want to understand the full component of the government’s package of reliefs, you can inquire with a small business accountant on the Gold Coast.


Nevertheless, this tax break was created to boost businesses from COVID-related blues, allowing them to deduct the total cost of eligible capital assets from their profit for the year instead of depreciating the cost over several years.


For small businesses, TFE offers a significant opportunity to boost businesses post-COVID. Now, you can deduct the total cost of all purchases of capital items, such as:


  • Technology: laptops, computers, security equipment, and Electronic Funds Transfer at Point of Sale (EFTPOS) systems

  • Fixtures and fittings for retail stores and coffee shops

  • Office furniture

  • Tools and equipment

  • Motor vehicles: utes, bikes, delivery vans, and cars under $59,136

  • Solar systems


How to Qualify for TFE


To qualify for TFE, you need to aggregate an annual turnover of less than $5 billion, with aggregate meaning that the local or overseas parent company’s and subsidiaries’ annual turnover are already included in the computation.


Businesses with an aggregated annual turnover of more than $5 billion but have an Australian income of less than $5 billion are also eligible for the tax break. However, that is on the condition that they spent over $100 million in 2016-2017 and 2018-2019. So in effect, the high turnover threshold includes almost every Australian business.


Moreover, TFE is applicable to new depreciable assets and the cost of improvements to current eligible assets, even when such assets were acquired before the launch of the tax break.


Full expensing is applicable to second-hand assets for small and medium-sized businesses with an aggregated annual turnover of less than $50 million. Businesses with a more than $50 million yearly turnover aren’t eligible for second assets.


Conclusion


Understanding the full scope of temporary full expensing for small Australian businesses is key to utilising the advantages offered by this scheme. It’s also beneficial for boosting your business and taking advantage of the post-COVID economic boom.


New Wave Accounting is a small business accountant on the Gold Coast, providing end-to-end accounting and bookkeeping services to help scale and grow businesses. Our experience spans working with more than 600 small businesses in various industries, allowing our Gold Coast accountants to understand every industry and create tailored solutions for every client. Set up your business right with New Wave Accounting. Book a free 30-minute strategy session now!


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