Legislation
Investment allowance Bill
19.03.2009
The Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009, which was introduced into Parliament on 19 March 2009, contains the amendments to the ITAA 1997 to provide the announced Tax Break (investment allowance) for new tangible depreciating assets and new expenditure on existing assets.
The amount of a taxpayer’s investment in an asset needs to exceed a certain threshold and the asset must be used principally in Australia for the principal purpose of carrying on a business.
The tax break is worked out using a rate of either 30% or 10% depending on when the taxpayer committed to investing in the asset. The tax break can be claimed in the income year that the asset is first used or installed ready for use.
Some points of interest are noted below.
New assets and new investment
For the purposes of the tax break, an asset is new if it has never been used or installed ready for use by anyone, anywhere. Second-hand assets are not eligible for the tax break.
Further, a taxpayer must make a decision to invest either in a new asset or an existing asset between 13 December 2008 and 31 December 2009.
Assets that a taxpayer held or entered into a contract to hold on or before 12 December 2008 will not qualify. However, additional investment in such assets undertaken from 13 December 2008 may be eligible for the tax break.
Eligible assets
“Depreciating assets” has the meaning given by Div 40 ITAA 1997 – it excludes land and trading stock and, for the purposes of the tax break, all intangible assets are excluded. Tangible depreciating assets include business machinery and equipment. A capital allowance deduction in relation to the asset must also be available under the core provisions of Div 40 contained in Subdiv 40‑B.
There are several exceptions to this rule – that is, assets which are made eligible for the tax break that would otherwise be excluded (noting that all other requirements still need to be met):
- cars for which a taxpayer uses the “12% of original value” method to work out their car expense deductions may be eligible assets;
- assets for which a small business entity claims capital allowance deductions under Subdiv328‑D ITAA 1997 may be eligible assets; and
- tangible, depreciating assets that receive deductions under the research and development (R&D) provisions may also be eligible for the tax break.
Expenditure thresholds
New investment in relation to an asset (usually the asset’s GST exclusive cost) needs to exceed a certain threshold before it can qualify for the tax break. The new investment threshold is $1,000 for small business entities and $10,000 for all other taxpayers.
Generally, the new investment threshold needs to be met for each individual asset. However, multiple investments – or recognised new investment amounts – in an individual asset may be amalgamated in meeting the new investment threshold. Taxpayers are also permitted to amalgamate their investment in a batch of identical, or substantially identical, assets; and assets that form part of a set for the purposes of meeting the relevant new investment threshold.
Used principally in Australia for the principal purpose of carrying on a business
A taxpayer must be able to demonstrate that at the time they started to use the asset (or had it installed ready for use), it was reasonable to conclude that the asset was to be principally used in Australia for the principal purpose of carrying on a business. The tax break will not be apportioned for any non-taxable use of the asset.
Claiming the tax break
The taxpayer who is entitled to the capital allowance deduction (under Subdiv 40‑B ITAA 1997) in relation to the asset’s decline in value is entitled to claim the tax break.
The tax break will be able to be claimed as part of the taxpayer’s income tax return. Provided all eligibility criteria are met, the income year in which the tax break can be claimed will generally be the income year in which the taxpayer first puts the asset to use.
To qualify for the 30% cent bonus deduction a taxpayer must:
- commit to investing in the asset between 13December2008 and 30June2009; and
- first start to use the asset or have it installed ready for use, or (in the case of new investment in an existing asset) bring the asset to its modified or improved state on or before 30June2010.
To qualify for the 10% bonus deduction a taxpayer must:
- commit to investing in the asset by 31December2009; and
- first start to use the asset or have it installed ready for use, or bring the asset to its modified or improved state on or before 31December2010.
A taxpayer will also qualify for the 10% bonus deduction it they:
- commit to investing in an asset by 30June2009; and
- first start to use the asset or have it installed ready for use, or bring the asset to its modified or improved state after 30June2010 but on or before 31December2010.
For the text of the amending Bill and of the explanatory memorandum, click here.
