Level 18, City Centre,
55 Market Street Sydney 2000
T: +61 2 9283 1666 | F: +61 2 9283 1866
Small Business and General Business Tax Break
The federal Government has announced a tax incentive which has been variously called an investment allowance, tax break and a tax bonus. Separate Press Releases announcing 10% and 30% incentives have also confused the issue. This alert amalgamates that information.
On 23 February 2009, the federal Government released draft legislation providing a bonus tax deduction for Australian businesses undertaking new capital investment during the 2009 calendar year. The measures, which were first announced on 12 December 2008, expanded on 3 February 2009, have been enhanced further in this announcement.
This legislation has been released in draft form for public comment. While the proposed law is not final, taxpayers are currently making investment decisions based on the Government announcement and it will be politically difficult for the Government to make adverse changes to these provisions in the future.
The proposed investment allowance provides an extra tax deduction to businesses which acquire eligible assets after 12 December 2008 and install them before 1 January 2011. If the asset is acquired before the end of June 2009 and installed before the end of the 2010 tax year, the bonus is 30% of the cost of the asset. Otherwise the bonus is 10% of the cost of the asset.
For business entities registered for GST, the cost of the asset is the GST-exclusive cost of the asset.
| NEW INVESTMENT BY | |||
| INSTALLED BY | 30 June 2009 | 31 December 2009 | |
| 30 June 2009 | 30% in 2008-09 | N/a | |
| 30 June 2010 | 30% in 2009-10 | 10% in 2009-10 | |
| 31 December 2010 | 10% in 2010-11 | 10% in 2010-11 |
Eligible assets
The investment allowance is available for new, tangible, depreciating assets or new expenditure on existing assets. For entities whose turnover is less than $2M, there is a threshold of $1,000 per asset to qualify for the allowance. All other businesses need to spend at least $10,000 per asset. For all business entities registered for GST, the threshold amount refers to the GST exclusive cost of the asset.
The investment allowance is in addition to the normal depreciation deduction entitlements and the whole amount is claimed in the year in which the asset is installed and ready for use.
The investment allowance will only be available during the 2009, 2010 and 2011 tax years and applies to new investment in tangible, depreciating assets which you intend to use in Australia principally for business purposes.
Under the proposed legislation, the investment allowance can be claimed in respect of new cars and demonstrators used principally for business purposes regardless of how you calculate deductions, with the exception of cents per kilometre claims and regardless of private use of the vehicle. The cost for calculating the investment allowance in respect of cars is capped at the depreciation cost limit which, for the 2008-09 tax year is $57,180. The maximum investment allowance for a car acquired in the 2009 tax year is $17,154.
Software, being an intangible asset, is not eligible for the tax break. Also, assets written off under special provisions such as software development pools, primary production water facilities and horticultural plants are not eligible for the tax break. Capital improvements, which are written off at 2.5% or 4% under Division 43, are not eligible assets. Land and trading stock are not depreciating assets and are not eligible for the tax break.
|
Eligible |
|
|
Not Eligible |
|
Principally for business in Australia
A taxpayer claiming the tax break must be able to demonstrate that, at the time they started to use the asset or had it installed ready for use, the asset was to be used in Australia for the principal purpose of carrying on a business.
There is no apportionment of the tax break for non-business use and there is no claw back for any subsequent non-business use or disposal provided the purpose was genuinely satisfied.
The taxpayer who is entitled to claim depreciation in relation to the asset is entitled to the investment allowance. As is currently the case with capital allowances, how the tax break is factored into lease prices will be a matter for commercial negotiation.
The income year in which the tax break can be claimed and the rate to be used in calculating the amount of the bonus depends on when the investment is undertaken and when the new, or modified, asset is put to use.
Generally, the investment time for these purposes is the time the taxpayer has:
• entered into the contract to start to hold the asset
• started to construct the asset or
• started to hold the asset in some other way.
The provisions contain anti-avoidance rules which prevent taxpayers from freshening up contracts to take advantage of the tax break.
If you are considering acquiring assets for business purposes, these provisions provide a strong incentive to bring forward investment plans. The investment allowance will factor in your decisions on how to finance the acquisition of new assets. Contact us for the latest in respect of these provisions or for assistance in negotiating terms through ESV Finance Solutions Pty Limited.
Next steps
Liability limited by a scheme approved under Professional Standards Legislation.
The information in this newsletter is quite general in nature and anyone intending to apply it practically to their own circumstances should seek professional advice to verify it’s individual applicability.
If you have any queries regarding the information contained in this
update please do not hesitate to contact us .
To receive future newsletters electronically please visit the
‘Latest News’ section of our website and ‘Subscribe’.