Late last year (2020), Parliament passed legislation providing for ‘temporary full expensing’ of capital amounts incurred on depreciable assets used, or held ready for use in COVID affected years. Of recent, the Commissioner has issued a form of ‘public ruling’ known as ‘Law Companion Rulings’ to support the introduction of new legislation. The Commissioner has issued a draft of such a ruling to support this relatively new ‘full expensing’ legislation.
See below for further details.
Law Companion Ruling on Temporary Full Expensing
On 9 June 2021, the Commissioner of Taxation issued ‘draft’ Law Companion Ruling LCR 2021/D1, which is about provisions for temporary full expensing of depreciating assets introduced by the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 (legislation) and the Treasury Laws Amendment (2020 Measures No.6) Act 2020 (legislation) – the JobMaker tax plan legislation. They enable businesses with an aggregated turnover of less than $5 billion to deduct the full cost of eligible depreciating assets that are first held, and first used or installed ready for use for a taxable purpose, between the 2020 budget time and 30 June 2022;
Temporary full expensing (Full Expensing) means the immediate write-off of the cost of depreciating assets and relevant additional expenditure in accordance with the rules in:
- Subdivision 40-BB of the Income Tax (Transitional Provisions) Act 1997 (Transitional Provisions Act), applicable to business entities generally, and
- section 328-181 of the Transitional Provisions Act, which modifies the operation of rules in Subdivision 328-D of the Income Tax Assessment Act 1997 (ITAA 1997), applicable to small business entities choosing simplified depreciation.
Before Full Expensing was introduced, instant asset write-off (Write-off) and ‘backing business investment’ measures (Accelerated Depreciation) were enacted, during 2020, to enhance immediate write-off and provide accelerated depreciation for eligible assets respectively. For the assets to which it applies, TFE effectively enlarges the scope of the Write-off by not stipulating a maximum cost of assets and by extending eligibility to large business entities.
The final Ruling when issued will:
- outline the operation of Full Expensing
- provide views on interpretive issues
- explain the interaction of Full Expensing with Write-off and Accelerated Depreciation, and
- explain and illustrate how Full Expensing applies to small business entities.
The due date for COMMENTS is 23 July 2021.
[ATO website: LCR 2021/D1]