Government Announcements
Revised investment allowance
03.02.2009
One element of the Government’s National Building and Jobs Plan announced by the Prime Minister and the Treasurer on 3 February 2009 is an investment allowance regime that increases and extends the investment allowance announced on 12 December 2008.
The known details of the new investment allowance regime are summarised below.
Time periods
There are two time periods that are relevant:
(1) where eligible assets are acquired, or start to be held, under a contract entered into (or are commenced to be constructed) between 12.01 am AEDT 13 December 2008 and before 1 July 2009 and are installed ready for use by 30 June 2010;
(2) where eligible assets are acquired, or start to be held, under a contract entered into (or are commenced to be constructed) between 1 July 2009 and before 1 January 2010 and are installed ready for use by 31 December 2010.
Rates and expenditure thresholds
For small business taxpayers with an annual turnover of $2,000,000 or less (presumably small business entities) the minimum expenditure threshold per item of eligible plant is $1,000. For other business taxpayers the minimum threshold per item of eligible plant is $10,000.
The rate of the allowance is 30% for time period (1) and 10% for time period (2).
Eligible assets
The allowance is to apply to new tangible assets used in Australia in carrying on a business, for which a deduction is available under the core provisions of Div 40 ITAA 1997. Specifically, the deduction will be available for new depreciating assets within sec 40-30 ITAA 1997 that qualify for capital allowance deductions, except for intangibles and rights that would otherwise be included by sec 40-30(2), (5) and (6) ITAA 1997. For the text of sec 40-30 ITAA 1997, see below.
However, cars will not be disqualified from the allowance merely because they use the 12% method. Land and trading stock are excluded from the definition of depreciating assets, and will not qualify.
Expenditures above the threshold which are capitalised into an existing asset as a second element of cost will also qualify for the allowance.
Claiming the allowance
The deduction is to be available to the taxpayer who is entitled to the capital allowance deduction and is on top of the usual capital allowance deduction claimable for the asset as part of the taxpayer’s income tax return.
The deduction will be able to be claimed based on the applicable rate (30% or 10%) and the asset’s first and/or second elements of cost in terms of Subdiv 40-C ITAA 1997.
The deduction is claimable in the income year in which the asset is installed ready for use.
Draft legislation
Draft legislation is to be released for consultation by the end of February 2009.
Technical comment
The way the Government’s announcement reads, it would seem that no allowance will be able to be claimed in respect of expenditure on eligible assets which are acquired or start to be held under a contract entered into (or which are commenced to be constructed) between 12.01 am AEDT 13 December 2008 and before 1 July 2009 but which are installed ready for use on or after 1 July 2010 and by 31 December 2010. This, it is submitted, requires clarification.
Media release
For the relevant joint media release of the Prime Minister and the Treasurer, click here.
Text of sec 40-30 ITAA 1997
The following is the text of sec 40-30 ITA 1997:
“What a depreciating asset is:
(1) A depreciating asset is an asset that has a limited *effective life and can reasonably be expected to decline in value over the time it is used, except:
(a) land; or
(b) an item of *trading stock; or
(c) an intangible asset, unless it is mentioned in subsection (2).
(2) These intangible assets are depreciating assets if they are not *trading stock:
(a) *mining, quarrying or prospecting rights;
(b) *mining, quarrying or prospecting information;
(c) items of *intellectual property;
(d) *in‑house software;
(e) *IRUs;
(f) *spectrum licences;
(g) *datacasting transmitter licences;
(h) *telecommunications site access rights.
(3) This Division applies to an improvement to land, or a fixture on land, whether the improvement or fixture is removable or not, as if it were an asset separate from the land.
Note 1: Whether such an asset is a depreciating asset depends on whether it falls within the definition in subsection (1).
Note 2: This Division does not apply to capital works for which you can deduct amounts under Division 43: see subsection 40‑45(2).
(4) Whether a particular composite item is itself a depreciating asset or whether its components are separate depreciating assets is a question of fact and degree which can only be determined in the light of all the circumstances of the particular case.
Example 1: A car is made up of many separate components, but usually the car is a depreciating asset rather than each component.
Example 2: A floating restaurant consists of many separate components (like the ship itself, stoves, fridges, furniture, crockery and cutlery), but usually these components are treated as separate depreciating assets.
(5) This Division applies to a renewal or extension of a * depreciating asset that is a right as if the renewal or extension were a continuation of the original right.
(6) This Division applies to a *mining, quarrying or prospecting right (the new right) as if it were a continuation of another mining, quarrying or prospecting right you held if:
(a) the other right ends; and
(b) the new right and the other right relate to the same area, or any difference in area is not significant.”
