The Small business and General Business Tax break was announced on 3 February 2009 as part of the Government’s Nation Building and Jobs Plan. The draft legislation is subject to the outcomes of the public consultation and passage through Parliament. 

For small businesses (turnover of less than $2m) this proposed investment allowance means that they would be able to access the tax break for assets costing $1,000 or more. For all other businesses, the asset threshold is $10,000.

The tax break provides an additional tax deduction for NEW assets acquired and installed between the relevant dates as per the table below.

Below is a list of some of the frequently asked questions:

    Which assets are eligible?  

• Assets that eligible will be tangible depreciating assets used in carrying on a business. Items covered under this division include assets such as machinery, equipment, computers and cars to mention some. It excludes integral assets, computer software, land and trading stock.
• In addition, the tax break will be available for new expenditure on existing assets. The assets must be used in Australia.
• A minimum expenditure threshold of $1,000 will also apply to small business entity. For all other businesses, the threshold of $10,000 applies.

    When do I need to purchase the asset to be eligible?
In order to qualify for the 50% investment allowance in your 2009 tax return, you must have invested in an eligible asset after 12 December 2008 and before the end of June 2009 and it must be installed ready for use by the end of December 2010. The investment time will be the point in time the taxpayer has entered into a contract to start to hold the asset, started to construct the asset or started to hold the asset in some other way. 

The extended 50% investment allowance, that applies where eligible new depreciating assets are acquired between 1 July 2009 and 31 December 2009 and they are installed ready for use by the end of December 2010, will be claimed on your 2010 tax return.
    
    Does the investment allowance apply to cars?
Yes, cars are eligible (expect for those using "the cents per kilometer method" for taxation purposes) The luxury car limit will apply if the cost price of the motor vehicle exceeds $57,180. This means that, at 50 per cent rate, the maximum deduction for a car in 2008-09 is $28,590.

    Can I claim the investment allowance for second hand cars and other second hand assets?
No, the investment allowance is generally only available for the cost of new assets or improvement of existing assets.

    Does the investment allowance apply to leases, hire purchase or chattel mortgages?
To obtain the investment allowance, the finance must be provided through a personal loan, home loan (split), chattel mortgage or hire purchase. In a lease arrangement, the actual finance company is entitled to the investment allowance. This may mean that you are able to negotiate further on a lease but there is no guarantee that the finance company will pass through the full benefits. 

    If I buy a number of assets that individually costs less then $1,000 but the total amount exceeds the threshold, am I still eligible for the investment allowance?
Small business entities will need to spend a minimum of $1,000 per asset in order to qualify for the tax break. This minimum may also be met where multiples of the same capital item are purchased concurrently and the total invoice exceeds $1,000.

    Will the tax break be reduced for non-business use?
No, you are still entitled to the full investment allowance. however, you must be able to demonstrate that at the time you started to use the asset or had it installed ready for use, the asset was to be used in Australia for the principal purpose of carrying on a business. 

    Is the investment allowance recouped if i sold the asset or stop using it principally for the business use within a year?
No, the tax break will not be clawed back for any subsequent non-business use or disposal of the asset. Furthermore, the tax break will not impact on balancing adjustment events and the tax treatment of an asset upon disposal.

EXAMPLE OF THE POTENTIAL TAX SAVINGS
Why you should purchase/hire purchase assets NOW!

By way of example, a Small Business taxpayer who purchases a piece of farming equipment for $100,000 (GST-exclusive) would be entitled to the following allowable deductions when factoring in the NEW investment allowance:

Cost of asset                                        $100,000

Depreciation claim for SBEs (@15%)       $15,000
NEW investment allowance (@50%)       $50,000

Total allowable deductions - Year 1    $65,000

Where you satisfy all the requirements of the allowance, you can claim the allowance in the income tax return for the year in which the asset if first used or installed ready for you. The allowance is in addition to any depreciation claimed. 

**We advise that the information provided is of a generic nature and may not be relevant for your specific situation. We advise that you seek professional advice from your taxation consultant.

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Source: Exposure Draft Tax Laws Amendment (Small Business and General Business Tax Break Bill 2009)