Edited version of private advice

Authorisation Number: 1052213265373

Date of advice: 22 January 2024

Ruling

Subject: Temporary full expensing

Question

Can the taxpayer claim a deduction for their vehicle under temporary full expensing for the year ended 30 June 2023?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

In December 20XX, the taxpayer placed an order and paid a $XXXX deposit for the vehicle.

At the time the taxpayer placed the order for the vehicle, the Australian Government had introduced temporary full expensing (TFE) as part of a series of measures to easy the COVID economic burden. In the taxpayer's private ruling application and a phone conversation, the taxpayer stated that had it not been for TFE, they would not have purchased the vehicle.

The vehicle arrived in Australia in June 20XX and received Australian compliance in June 20XX. The taxpayer paid in full for the vehicle on XX June 20XX but picked up the vehicle after 30 June 2023.

Relevant legislative provisions

Income Tax (Transitional Provisions) Act 1997 Subdivision 40-BB

Income Tax (Transitional Provisions) Act 1997 section 328-181

Income Tax Assessment Act 1997 Subdivision 328-D

Reasons for decision

Temporary full expensing (TFE) allows for 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 (IT(TP)A), applicable to business entities generally, and

•         section 328-181 of the IT(TP)A 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.

Section 328-180 of the ITAA 1997 operates to allow small business entities to access an immediate deduction for the taxable portion of a depreciating asset for the income year in which they start to use it, or have it installed ready for use, for a taxable purpose if the cost of the asset, as at the end of the income year, is less than $1,000.

Subsection 328-181(2) of the IT(IP)A states:

For the purposes of determining whether subsection 328-180(1) of the Income Tax Assessment Act 1997 allows you to deduct an amount in relation to a depreciating asset, disregard paragraph (b) of that subsection (which sets a limit of $1,000 on the cost of the asset) if, in the period beginning at the 2020 budget time and ending on 30 June 2023, you:

(a)  start to hold the asset; and

(b)  start to use it, or have it installed ready for use, for a taxable purpose.

Law Companion Ruling LCR 2021/3 Temporary full expensing, is about the Subdivision 40-BB of the IT(TP)A and section 328-181 provisions for temporary full expensing of depreciating assets.

Paragraph 12 of LCR 2021/3 explains that for all entities, full expensing is only temporary.

To claim TFE an eligible entity would have needed to start holding the depreciating asset and started to use the asset, or have it installed ready for use, for a taxable purpose at or after 7.30pm AEDT on 6 October 2020 (the 2020 budget time) and on or before 30 June 2023.

Application to your circumstances

On 10 December 20XX, the taxpayer placed an order and paid a $XXXX deposit for the vehicle. The vehicle arrived in Australia in June 2023 and Australian compliance was given in June 2023. The taxpayer paid for the vehicle on XX June 2023 and picked up the vehicle in July 2023.

The taxpayer started holding the depreciating asset and started to use the asset for a taxable purpose after 30 June 2023. Therefore, the taxpayer cannot claim a deduction for the vehicle under TFE for the income year ended 30 June 2023.