As part of the COVID-19 response, the federal government announced generous temporary full expensing of depreciating assets (FEDA) (also known as Temporary Full Expensing (TFE)) for small business entities, for assets acquired from 7.30pm AEDT on 6 October 2020 and first used and installed by 30 June 2023.
These rules effectively supercharged the depreciation rules to allow businesses to claim an immediate deduction for the cost of an asset in the year it was first used or installed ready for use, for a taxable purpose.
FEDA fed the R&D coffers
Prior to the FEDA rules, an R&D entity could not claim the full capital cost of a tangible depreciating asset. A company could only claim the decline in value of an R&D asset for the period that the asset was used in the R&D activity.
FEDA allowed for an R&D entity to deduct the full cost of an asset and claim the tax write-off amount as a notional R&D deduction to the extent of the asset’s R&D use, effectively allowing a company to deduct the capital cost and receive an uplift under the R&D rules.
The beginning of the end
The FEDA rules ended on 30 June 2023. This means no more immediate deductions for the capital costs of tangible assets, and no R&D uplift. For the 2023-24 income year, small business entities will need to calculate the decline in value of an asset under the normal depreciation rules. There is a proposed temporary increase to the instant asset write-off threshold for 12 months to 30 June 2024, however at the time of writing this measure is not law.
R&D entities that have previously applied FEDA on an R&D asset must understand that the adjustable value becomes nil. This may impact future R&D balancing adjustment calculations for assets that are disposed for consideration in the future.
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