30% Investment Allowance

On 3 February 2009 the Treasurer stated that the previously announced 10% investment allowance would be replaced with a rate of 30%.

This tax initiative to encourage capital investment in Australian businesses and create jobs during the global financial crisis may be of interest to you in your business.

The investment allowance provides business taxpayers with an additional deduction of 30% for eligible depreciating assets acquired by 30 June 2009 and installed ready for use by 30 June 2010.

A 10% rate will apply instead if the taxpayer starts to hold an eligible asset under a contract entered into between 13 December 2008 and 31 December 2009 and the asset is installed ready for use after 30 June 2010, but by the end of 31 December 2010.

Only taxpayers carrying on businesses in Australia will be eligible for this temporary concession. The minimum expenditure threshold for a small business taxpayer (i.e. a business with turnover less than $2 million) is $1,000, while for all other business taxpayers, the minimum expenditure threshold is $10,000.  Note that the threshold is GST exclusive value. The relevant threshold applies on a “per asset” basis.  Expenditure on different assets cannot be added together for the purpose of meeting the minimum threshold.

An entitlement to claim a deduction for the concession will arise in either the 2009, 2010 or 2011 income years, depending on when the total expenditure in relation to an eligible asset equals or exceeds a minimum expenditure threshold.

This concession only applies to new tangible depreciating assets and new expenditure on existing tangible depreciating assets.  Therefore second-hand depreciating assets will not be eligible for the concession

Motor vehicles will be included in this allowance but land, trading stock, intangibles and rights will not qualify for the investment allowance. Any assets that have previously been used or held for use will also be excluded. Leased assets are not taken to be held by the lessee for depreciation purposes and therefore do not qualify for the concession either, however, chattel mortgage or hire purchase will qualify.

Note that the concession will not be apportioned for any non-business use of the asset.  In order to claim the whole deduction for the concession where an asset is used partly for private purposes, the taxpayer must be able to show that at the time they started to use the asset, or had it installed ready for use, the asset was to be used in Australia predominately for the business purpose.

This initiative is a cash flow saving for small business as your actual tax liability for the year will be worked out when your 2009 tax return is lodged.

If you have any questions about the investment allowance or would like more information about how it can apply to your business, please call me on 9411 5422.