Temporary full expensing (“TFE”) ceases to apply on 30 June 2023. The incentives, which were introduced as an economic stimulus during the COVID-19 pandemic, provided for the immediate tax deduction of eligible assets for businesses with an aggregated turnover of less than $5 billion.
Since its commencement on 6 October 2020, wine and viticulture businesses have made use of TFE to make important investment in their plant and equipment including viticulture machinery, and equipment to support the production of wine. From 1 July 2023, wine businesses will need to give greater consideration to the tax treatment of purchasing these items, as in most cases, the tax benefit will be realised over a greater period of time.
As announced in the recent budget, in place of the unlimited TFE, instant asset write-offs will only be available to small businesses with a turnover of less than $10 million for eligible assets costing less than $20,000 excluding GST.
| 6 October 2020 - 30 June 2023 | 1 July 2023 - 30 June 2024 | |
| Incentive Name | Temporary Full Expensing | Instant Asset Write-Off |
| Group Turnover Threshold | < $5 billion | < $10 million |
| Asset Value Threshold | Unlimited | < $20,000 |
If an asset is not eligible for the instant asset write off, it will be depreciated for tax purposes either in accordance with the simplified depreciation rules, or the general capital allowance provisions. Some assets are specifically excluded, including assets that are leased out, or expected to be leased out, for more that 50% of the time on a depreciating asset lease.
To access the simplified depreciation rules, wine businesses will need to have aggregated turnover of less than $10 million and elect to do so in their tax return. The simplified depreciation rules allow instant asset write-off for assets less than $20,000 and all other assets are depreciated at 15% in their first year and 30% in years thereafter.
For wine businesses that choose not to access the simplified depreciation rules, or are not eligible, the assets must be depreciated for tax purposes in accordance with the general capital allowance provisions. Depreciation can be claimed using either the prime cost method or the diminishing value method. Both methods require the taxpayer to determine the asset’s effective life. The ATO provides the effective life of depreciating assets in TR 2022/1 to assist in situations where the taxpayer cannot make their own appropriate estimate. The ATO’s guidance in the taxation ruling can provide more certainty to wine businesses as to the rate at which they are depreciating their assets for tax purposes.
For those wine businesses that are also involved in primary production, it is noted that there are special rules to calculate the decline in value of:
- Water facilities used to conserve or convey water
- Fencing assets
- Fodder storage assets, and
- Horticulture plants (including grapevines)
With the end of TFE, wine business owners need to revisit how their assets are being depreciated to ensure they are maximizing the tax benefit of their investment in the growth and future of their business. If you have any questions or to discuss your personal situation, please speak to you local Nexia advisor.
