In recent years taxpayers who were carrying on a business likely benefitted from the Temporary Full Expensing (TFE) and or Loss Carry-back measures. These temporary measures were put in place largely to help businesses and the economy through a period of uncertain economic volatility during Covid-19 by offering tax breaks and benefits.
With both measures now unavailable from the FY24 income year and beyond, businesses should consider what impact utilising these measures has had on their operations, and whether any steps need to be taken to ensure an easy transition into a post TFE and Loss Carry-back world.
Temporary Full Expensing considerations
As a recap, the TFE measure allowed eligible businesses to fully depreciate eligible assets in the year they were acquired and installed ready for use, rather than spreading the tax deductions over the life of the asset. Businesses that took advantage of the TFE should consider what this means for their accounts and future operations. Tax fixed asset registers will need to ensure that no further tax depreciation is claimed on assets which the TFE has been applied to. This will likely result in the need to recognise deferred tax liabilities against assets that have had the TFE applied which may be required to be recognised in the financial statements. Additionally, the reduction in tax base on depreciable assets could result in taxable balancing adjustments arising should the asset be sold in the future, which could have a cash tax implication.
For FY24, eligible small businesses may still benefit from the increased instant asset write off measure which was announced in the 2023-24 Federal Budget. This measure allows small businesses to continue to deduct the full costs of eligible assets up to $20,000. It is expected that this will be further reduced in the FY25 year, however the measure is still yet to be law.
Loss Carry-back consideration
As a recap, the Loss Carry-back measure was introduced to allow eligible businesses to carry back a current year loss to a previous taxable year and recoup some, or all the tax paid in a previous year up to the FY19 year. As a result, businesses will likely need to review their franking account balance for the FY24 year to ensure it correctly captures any tax refunds received from previous years. This could impact a company’s ability to frank future dividends due to a reduction in the franking account balance. Therefore, consideration should be given to ensure the company does not over frank its future dividends which could result in a franking account deficit and attract tax liability implications.
If you would like any further information or assistance on how your business should position itself in a post TFE and Loss Carry-back environment, please don’t hesitate to get in touch with us today.