In the October 2020 budget, the Government introduced and augmented stimulus measures to encourage investment and allow eligible businesses to claim an immediate deduction for the cost of an asset in the year the asset is first incurred.
This included measures for Temporary Full Expensing (TFE) of assets that an entity first acquires/installs between 7:30pm AEDT on 6 October 2020 (the 2020 Budget time) and 30 June 2022.
Subject to certain conditions around how an asset was acquired, held and first used, these provisions potentially allow the cost of R&D assets to be included in notional deductions for R&D expenditure.
This change, allowing notional R&D deduction of the cost of a tangible asset, represented a significant enhancement to the R&D Tax Incentive for companies that were purchasing tangible assets for use in R&D activities, and applying the TFE provisions. Prior to TFE, assets dealt with under previous concessional provisions (such as the instant asset write off and low value pools) were previously not eligible for inclusion within R&D expenditure.
The previously announced extension of the TFE provisions for depreciating assets qualifying up to 30 June 2023 is now law, and was passed in February 2022.
Companies seeking to apply the TFE provisions to R&D assets, should carefully seek to understand interactions with the issues specifically relevant to R&D assets.
Given that expenditure determined in applying TFE provisions to R&D assets can be high, and companies make investment decisions driven by the TFE, we hope that the ATO may release specific guidance on application of TFE provisions to R&D assets.
Companies should also carefully review the ATO’s TFE guidance and seek advice on the matter where relevant.