In a further attempt to support and stimulate the businesses of Australia, and small businesses in particular, the Federal Government has introduced a temporary “investment allowance” known as the “Small Business and General Business Tax Break”.
The original proposed allowance package was amended prior to being approved, with the final version having both an increased amount and scope. The revised allowance provides that for tangible depreciating assets that are acquired between 13 December 2008 and 30 June 2009 small business owners can now claim an additional 10% deduction.
Which assets are eligible for the new “Small Business and General Business Tax Break”?
Assets that are eligible for the “investment allowance” are any new tangible depreciating assets and also any new expenditure on existing assets that are used in carrying on a business that are considered eligible for a deduction under the core provisions of Division 40 (Capital Allowances) in the ITAA 1997.
Specifically, the deduction is applied to depreciating assets under S.40-30 that already qualify for the capital allowance under Subdivision 40-B, except for intangibles and rights that would otherwise be included by S.40-30(2), (5) and (6).
However, it is important to note that cars will NOT be disqualified from the allowance merely because they use the 12% method.
Additionally, land and trading stock are EXCLUDED from the definition of depreciating assets, and will not qualify for the deduction.
Expenditures above the threshold which are capitalised into an existing asset as a second element of cost will also qualify for the deduction.
How much “allowance” do I get?
The “investment allowance” has different conditions depending on whether the entity is a “small business” or “other business”. The general guidelines for each situation are outlined below.
In order to be eligible to benefit from the “Small Business Tax Break” a small business must have an annual turnover of $2 million a year or less.
Small businesses can claim an additional 30% tax deduction for eligible assets costing $1,000 or more that are acquired between 13 December 2008 and 30 June 2009, and are installed by 30 June 2010.
For eligible assets costing $1,000 or more that are acquired from 1 July 2009 to 31 December 2009 and are installed by 31 December 2010, small businesses can claim an additional 10% deduction.
This deduction is on top of the usual capital allowance deduction claimable for the asset in the taxpayer’s income tax return.
Other businesses are entitled to the same deduction percentage rates for the same defined purchase and installation periods however this only applies to eligible assets costing greater than $10,000.
What are some practical applications of the new “Small Business and General Business Tax Break”?
Example 1: A small business that buys and installs a $1,500 computer before 30 June 2009 can claim an additional $450 deduction (i.e., 30%) in its 2008/09 tax return.
Example 2: A Landscaping business entered into a binding contact to acquire a new backhoe on 20 May 2009 at an inclusive cost of $50,000.
The backhoe is delivered and ready for use on 20 June 2009 and has an effective life of 8 years.
The business will be entitled to claim the 30% deduction because:
- A backhoe is a depreciating asset for which the business would be entitled to claim a deduction under the core provisions of Subdivision 40-B of the ITAA 1997;
- The asset exceeds the expenditure threshold of $10,000;
- The business started to hold the asset between 13 December 2008 and the end of June 2009; and
- The asset was installed ready for use before the end of June 2010.
The deduction will be 30% of the asset’s first element of cost under Subdivision 40-C (i.e., $15,000).
When lodging its 2008/09 income tax the business will be able to claim this deduction in addition to the usual depreciation deduction in respect of the asset.
If the business had delayed this investment until after 30 June 2009 – for example, until September 1 2009 – and had it installed ready for use before the end of December 2010, the 10% rate would apply (meaning it would be able to claim a deduction of $5,000).
The information above is a general overview of the Government’s new Small Business and General Business Tax Break. If you have recently purchased for your business, or perhaps you are considering purchasing capital investments in your near future, then you may be eligible for the “investment allowance”. For more information on how you can make the most of this Government benefit contact the tax and accounting experts at The Quinn Group on 1300 QUINNS or submit an online enquiry form.