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APRIL 2009
New Investment Allowance – FAQs
The new Investment Allowance that provides for a one-off deduction of 30% on eligible, new assets, is a great opportunity for clients to tax effectively acquire new assets in their businesses.
Here are some of the frequently asked questions on the new Investment Allowance. If you have any questions to add to the list, please contact us.
What if I don't meet the June 2010 installation deadline?
If you acquire or start to hold an eligible asset between 13 December 2008 and the end of June 2009 and miss the end of June 2010 installation deadline you will miss out on the 30% bonus deduction.
However, provided the asset is installed by the end of December 2010 you will still qualify for the 10% bonus deduction.
What does 'new' mean?
The Investment Allowance will be available for new, tangible depreciating assets or new expenditure on existing assets. 'New' refers to assets that have not been used before by anyone, anywhere, except where an asset has only been used for reasonable testing and trialling. By tangible, we refer to physical assets and so software, intellectual property and other such rights do not qualify for the Investment Allowance.
Do cars qualify?
New motor vehicles used principally for business purposes are an example of the kind of assets that could qualify for the Tax Break.
Are demonstrator vehicles new?
Demonstrator vehicles can qualify as 'new' assets, provided they have only been used for reasonable testing and trialling.
Do buildings qualify?
No. The Tax Break will be available for new tangible depreciating assets for which a deduction is available under the core provisions of Div.40 and new expenditure on existing assets.
Capital works covered by Div.43 will not qualify for the Tax Break.
Does software qualify?
No. The Tax Break will be available for new tangible depreciating assets. Software is classed as an intangible and so is not eligible.
Will the Tax Break be reduced for non-business use?
Unlike depreciation deductions, the Tax Break will not be apportioned for any non-business use of the asset.
However, a taxpayer must be able to demonstrate that the asset was to be used in Australia and for the principal purpose of carrying on a business.
Will it bring forward the depreciation claims or is it on top of these deductions?
The Tax Break will provide a bonus deduction rather than bringing forward normal deductions for depreciation. This means that, over time a taxpayer could effectively claim deductions of up to 130% of the asset's value.
Will the car limit apply to the Tax Break?
Yes, the car limit will apply to eligible luxury cars.
The car limit for 2008/09 is $57,180. This means that, at the 30% rate, the maximum bonus deduction available for a car in 2008/09 is $17,154.
Student’s Uni expenses deductible
In a surprising decision, the Federal Court (Ryan J) has allowed a taxpayer's appeal in relation to expenses incurred in the course of obtaining a teaching degree allowing deductions under Section 8-1 of the 1997 Tax Act as they were incurred in deriving the Youth Allowance under the Social Security Act 1991 (SSA).
The taxpayer, Ms Anstis, claimed deductions totalling $920 for a student administration fee, depreciation on a computer, textbooks/stationery, etc as self-education expenses for the year ended 30 June 2006. She hadn’t derived income from teaching but had received the Youth Allowance, which is assessable income under s 6-5 of the ITAA 1997.
Even though the taxpayer's ultimate motive in undertaking the course was to acquire a teaching qualification, the Court considered this to be irrelevant as the expenditure only had to be incurred as a necessary incident of deriving the Youth Allowance.
Over the years, most full time undergraduate expenses have been held to be capital because they were derived too soon in relation to the income to which they related. Here, as the expenditure was related to the Youth Allowance, the Court was of the view that it was not incurred at "a point too soon".
Superfund audits on the rise – 11,000 audits planned in 2009/10
In a recent speech in Sydney, Neil Oleson, Deputy Commissioner of Taxation, indicated that the Tax Office was targeting SMSFs and their auditors.
Compliance issues
Mr Oleson indicated that to date, the Tax Office has concentrated on putting its efforts into educating and assisting those involved in the system to meet their roles and obligations.
"We now have some 200 compliance staff focussed on self-managed fund issues."
"We have gone from completing around 3,600 compliance cases in 2006/07 to around 10,400 cases in 2007/08. In 2008/09 we are well on track to completing over 11,000 cases."
We have written in previous issues about benchmarks that the Tax Office has issued in relation to the following industries:
- Concreting;
- Floor sanding and polishing;
- Metal roofing;
- Painting;
- Roof guttering;
- Roof tiling; and
- Taxis.
They have now issued benchmarks for the timber floor installation industry.
These benchmarks indicate an expected range of income for timber floor installers based on the labour and materials used. They apply to timber floor installers who work directly with household customers.
The benchmarks set out average:
- coverage rates;
- job sizes;
- prices charged; and
- annual sales turnovers.
Example
Tony has a timber flooring business with one employee. His work is all installation only.
Tony normally charges $32 per square metre and installs around 19 square metres per day to earn $608 which is close to the benchmark.
Checking his business records, he finds he has recorded income of $98,500 for the year.
Using his benchmark earnings of $608 per day, Tony estimates he would have worked 162 days to earn $98,500. However, he has had a busy year and is sure he worked more than that.
He reviews his quote books and finds 14 jobs where he was paid cash and he charged $34,500 for these jobs.
With these additional jobs, he calculates that he worked for 218 days and he recalculates his income for the year at $133,000 which is consistent with the benchmarks.
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.
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