On 20 April 2021, the ATO released the schedule to be used by individuals, companies, partnerships, trusts and AMITs who are claiming a deduction or opting out of temporary full expensing or backing business investment, who have a ‘Substituted Accounting Period (SAP) or are lodging a part year return, to notify the ATO that they are claiming the ‘Temporary Full Expensing’ or ‘Backing Business Investment’ Covid incentives. Where applicable, you may have to act before 1 July 2021.
See below for for further details.
The ATO has released the schedule to be used by individuals, companies, partnerships, trusts and AMITs who are claiming a deduction or opting out of temporary full expensing or backing business investment, and either:
- have an approved substituted accounting period with a year ending before 30 June 2021; or
- need to lodge a tax return for part of the year. This could be because your business is entering into liquidation or you stop being an Australian resident for tax purposes during the 2021 income year before 30 June 2021.
When lodging an individual, company, partnership, trust or AMIT tax return, the ATO requires that an entity use this schedule to advise it of either the entity’s:
- deduction for temporary full expensing, number of assets it is claiming for, aggregated turnover and if it is using the alternative income test; or
- decision to opt out of temporary full expensing or backing business investment, and the number and value of the assets that it is opting out for.
The ATO states that the schedule should only be completed if the entity is claiming temporary full expensing or making the choice to opt out of temporary full expensing or backing business investment. It should be completed by either the individual, public officer, director, partner, trustee or tax agent who lodges for the business before 1 July 2021.
From 1 July 2021, entities must use the 2021 tax return.
Temporary full expensing
New assets – Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new depreciating assets. Corporate tax entities unable to meet the $5 billion turnover test may still be eligible for temporary full expensing under the alternative income test. The eligible new assets must be first held, and first used or installed ready for use for a taxable purpose, between 7.30pm AEDT on 6 October 2020 and 30 June 2022.
Second hand assets – For businesses with an aggregated turnover of less than $50 million, temporary full expensing also applies to the business portion of eligible second-hand depreciating assets.
Improvements – Businesses can also immediately deduct the business portion of the cost of improvements to eligible depreciating assets (and to assets acquired before 7.30pm AEDT on 6 October 2020 that would otherwise be eligible assets) if those costs are incurred between 7.30pm AEDT on 6 October 2020 and 30 June 2022.
Opt-out – You can make a choice to opt-out of temporary full expensing for an income year on an asset-by-asset basis if you are not using the simplified depreciation rules.
Small Business simplified rules – If you are a small business that chooses to use the simplified depreciation rules, you apply the temporary full expensing rules with some modifications. This includes deducting the balance of your small business pool at the end of an income year ending between 6 October 2020 and 30 June 2022. See Small business entities using the simplified depreciation rules.
[ATO website: explanation]
Backing business investment (accelerated depreciation)
Eligible businesses, for the 2019–20 and 2020–21 income years, may be able to deduct the cost of new depreciating assets at an accelerated rate using the backing business investment – accelerated depreciation rules. For most taxpayers, this allows 50% of the cost of the asset to be deducted, in the first year, and the balance of the depreciation as if the cost had been reduced by that 50% amount.
For each new asset, the backing business investment – accelerated depreciation deduction applies in the income year that the asset is first used or installed ready for use for a taxable purpose.
You claim the deduction when lodging your tax return for the income year. The usual depreciating asset arrangements apply in the subsequent income years that the asset is held.
If you are eligible for backing business investment – accelerated depreciation, you can choose to not apply these rules to an asset. The choice can be made on an asset-by-asset basis but cannot be changed once made.
For most businesses you must:
- make the choice in your tax return
- notify us by the day you lodge your tax return for the income year to which the choice relates.
[ATO website – explanation]