In the recent federal Budget the Government has confirmed that the proposed Investment Allowance will definitely be going ahead. In addition, they have increased the allowance for eligible small businesses from 30% to 50%.
Following are a few frequently asked questions about the new Investment Allowance.
What is meant by “new”?
The description of the new investment allowance refers to the tax break being available for new, tangible depreciating assets or new expenditure on existing assets. The term new here refers to assets that have not been used anywhere, by anyone, except for those assets that have only been used for reasonable testing and trialing.
Do Cars Qualify?
Yes. New cars for business purposes as well as demonstrator vehicles provided they have only been used for reasonable testing and trialing. (Although this is provided that all the other criteria are met).
Do assets held under lease qualify?
If the asset being leased is new, a tangible and depreciating asset for which a deduction is available under the core provisions of Div.40, then it will be eligible for the tax break.
Div.40 provides an outline for determining who, in a leasing arrangement, is able to claim depreciation deductions in respect of the asset and hence would be entitled to claim bonus deduction in a leasing situation.
As with capital allowance deductions how the tax break is factored into lease prices will be a matter for commercial negotiations.
With most leasing arrangements it is the lessor who is considered to be the holder of the asset and therefore they are able to claim the bonus deduction, if it is eligible. However, in some cases if is deemed that the lessee is reasonably expected to own the eligible asset at some point in time then they may be able to claim the bonus deduction in relation to the asset.
Do Buildings Qualify?
No. Land, buildings, trading stock and intangible assets are all excluded from the definition of a depreciating asset in section 40-30. These assets are not eligible for the Tax Break.
Is the tax break available to more than just small business entities?
Yes. Bonus deductions are available to all businesses. However, small business entities only need to spend a minimum of $1,000 per asset in order to qualify for the 50% Tax Break. Other businesses need to meet the minimum spend of $10,000 to be able to qualify for the 30% bonus deduction.
What if I don’t meet the June 2010 installation deadline?
For general businesses, if you acquire or start to hold an eligible asset between 13 December 2008 and the end of June 2009 and do not install by 30 June 2010 then you will miss out on the 30% deduction. However, provided the asset is installed by December 2010 you will still qualify for the 10% deduction.
Small business have until 31 December 2010 to install or use their assets and still be eligible for the 50% bonus deduction.
This is just the tip of the iceberg when it comes to eligibility criteria and further details regarding the requirements for the bonus deduction. If you have any questions or would like advice on how you can use the new Investment Allowance to benefit your business, do not hesitate to contact a member of the The Quinn Group team on 1300 QUINNS or click here to submit an online enquiry.