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Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.

 

Accessing the new Investment Allowance

On budget night the Federal Government announced that it would expand the Investment Allowance available for small business – ie. those businesses that have a turnover (including associates) of less than $2 million a year – by increasing the deduction available for these businesses from 30 per cent to 50 per cent of the cost of eligible assets.

Small Businesses were also given extended time periods in which they could:

  • order assets eligible for the 50 per cent Investment Allowance ie between 13 December 2008 and 31 December 2009; and
  • install assets eligible for the 50 per cent Investment Allowance ie until 31 December 2010.

Larger businesses (over $2M turnover) are still eligible for the previously announced Investment Allowance:

  • At the 30 per cent rate for assets acquired between 13 December 2008 and 30 June 2009 that are installed before 30 June 2010
  • 10 per cent for assets acquired between 13 December 2008 and 30 June 2009 that are installed on/after 1 July 2010 and before 31 December 2010.

If a taxpayer is a small business entity then the 50 per cent rate is relevant. A taxpayer is defined as a small business entity for the current income year if they carry on a business in that year and they carried on a business during the previous income year and their aggregated turnover for that year was less than $2 million and/or it is likely that their aggregated turnover is to be less than $2 million for the current income year.

To qualify for the lower ‘new investment threshold’ (ie $1000 rather than $10,000) a taxpayer needs to be a small business entity for the income year in which they undertake new investment in an eligible asset, put that asset to use or claim the Tax Break. 

Other taxpayers

If a taxpayer is not a small business, then there are two rates which could apply ie 30 per cent or 10 per cent. 

Summary Tables

 Installed by:New Investment by:
31 December 2009
30 June 200950% in 2008-09
30 June 201050% in 2009-10
31 December 201050% in 2010-11

      Table 1: Tax entitlements for small business entities. 

  New investment by:
Installed by:30 June 200931 December 09
30 June 200930% in 2008-09 
30 June 201030% in 2009-1010% in 2009-10
31 December 201010% in 2010-1110% in 2010-11

       Table 2: Tax entitlements for other taxpayers                  

Self – constructed assets

A taxpayer that chooses to ‘self-construct’ an eligible asset may also qualify for the Tax Break. Under amendments made to the Bill during its passage through Parliament, a taxpayer will be regarded as having started to construct an eligible asset when they first incur expenditure in respect of the construction of the asset or the modifications to an existing asset.

This approach ensures that the test for self constructed assets is broadly analogous to the case where a taxpayer enters into a binding contract, while providing taxpayers with the certainty of an objective and verifiable test.

For example

Donaldson’s Dairy manufactures a range of milk and cheese products. In early 2009 the company starts to formulate plans to renovate one of its manufacturing plants. The project includes:

  1. Modifications to an existing tank; and
  2. The construction of a new conveyer belt.

On 30 March 2009 the company engages an electrical firm to undertake the modifications to the tank at a cost of $15,000 rather than construct the modifications itself.

Also on 30 March 2009 the company starts to order some of the materials it will need to construct the new conveyor belt and incurs expenditure in relation to the materials.

On 20 July 2009 the company engages two contractors who will undertake the work on the new conveyor belt under the direction of the company’s chief engineer.

The contractors do not physically commence work on the conveyor belt straight away. They spend a number of weeks undertaking further preparatory work and checking the company’s exact specifications for the asset to be constructed.

The modifications to the tank are completed on 30 September 2009.Construction of the conveyor belt is completed, and the belt is installed ready for use, on 10 October 2009 at a total cost of $50,000.

The company’s investment commitment time in relation to the tank is 30 March 2009 as this is when it entered into a contract in relation to modifications. The investment commitment time in relation to the conveyor belt is also 30 March 2009 as this is when the company first incurred expenditure in respect of the construction of the asset.

If the company however, had not ordered the materials for the conveyer belt until the contractors were hired, then 20 July 2009 would be the investment commitment time for the conveyor belt (as that is when the company would have first incurred expenditure in respect of the construction of the conveyor belt) and the Investment Allowance would only be available at 10 per cent rate on the asset.

Peter Braine
My Business, June, 2009

 


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