Choosing the right depreciation incentive

The information on this page will help you decide which tax depreciation is right for your client.

The order of applying the depreciation, if more than one incentive applies:

• Temporary full expensing (TFE)
• Instant asset write-off (IAWO)
• Backing business investment (BBI)
• General depreciation rules

Temporary full expensing (TFE) & Backing business investment (BBI)

An asset cannot be eligible for Temporary full expensing (TFE) and backing business investment (BBI) incentives at the same time. This is because the TFE measure takes precedence (see s40-145 and Note 1 to ss40-120(1) of the Income Tax (Transitional Provisions) Act 1997).

The ATO has introduced asset by asset opt-out choice for TFE and BBI.

Some examples of how you can apply depreciation on an asset-by-asset basis.

• An eligible business:
  • is an SBE using simplified depreciation rules, they cannot opt out of TFE.
  • is an SBE but not using simplified depreciation rules, can opt out of TFE, but cannot use IAWO and must use BBI. If opting out of BBI, then use the general depreciation rules. See s40-120(1) and s40-137.
  • with a turnover of less than $500million and not SBE, can opt out of TFE and must use IAWO. BBI and general depreciation cannot be used as the business cannot opt out of IAWO.
  • with a turnover of $500million and less than $5billion, can opt out of TFE and use general depreciation rules. IAWO and BBI do not apply to businesses with a turnover of more than $500 million.

Use the table below to find out how you can apply the depreciation incentives. To find out more, see Interaction of tax depreciation incentives.

If a taxpayer opts out of both TFE and BBI for the same asset. It will need to be reported twice. Once in Opt-out for TFE and then in the opt-out for BBI.