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INVESTMENT ALLOWANCE BILL INTRODUCED
Measures to provide a temporary bonus income tax deduction for new investment in tangible depreciating assets undertaken between 13 December 2008 and 31 December 2009 have been introduced into parliament.
The measures are contained in the Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009. The Bill inserts a new Div 41 into ITAA 1997 to provide a legislative framework for the new deduction ("the tax break"). The measures were previously released in draft form on 25 February 2009.
The tax break:
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 of ITAA 1997 – it excludes most intangible assets, land and trading stock. 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 (ie assets which are made eligible for the tax break that would otherwise be excluded):
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
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.
Unlike deductions under Subdiv 40-B, 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 of 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. 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.
30% bonus deduction
To qualify for the 30% bonus deduction a taxpayer must:
To qualify for the 10% bonus deduction a taxpayer must:
The table below summarises the key dates relating to the different rates at which the tax break could be claimed for taxpayers using standard income years.
Date of effect
The amendments apply to assessments for the 2008/09, 2009/10, 2010/11 and 2011/12 income years.
Source: CCH Tax Week, Issue 11, 19 March 2009
Measures to provide a temporary bonus income tax deduction for new investment in tangible depreciating assets undertaken between 13 December 2008 and 31 December 2009 have been introduced into parliament.
The measures are contained in the Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009. The Bill inserts a new Div 41 into ITAA 1997 to provide a legislative framework for the new deduction ("the tax break"). The measures were previously released in draft form on 25 February 2009.
The tax break:
- is limited to new tangible, depreciating assets for which a deduction is available under Subdiv 40-B of ITAA 1997 and new investment in existing assets
- requires the amount of a taxpayer’s investment in an asset to exceed a certain threshold
- requires the asset to be used principally in Australia for the principal purpose of carrying on a business
- is worked out using a rate of either 30% or 10% depending on when the taxpayer committed to investing in the asset
- can be claimed in the income year that the asset is first used or installed ready for use.
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 of ITAA 1997 – it excludes most intangible assets, land and trading stock. 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 (ie assets which are made eligible for the tax break that would otherwise be excluded):
- Cars for which a taxpayer uses the "12 per cent 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 Subdiv 328-D may be eligible assets
- Tangible, depreciating assets that receive deductions under the research and development (R&D) provisions may also be eligible for the tax break.
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
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.
Unlike deductions under Subdiv 40-B, 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 of 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. 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.
30% bonus deduction
To qualify for the 30% bonus deduction a taxpayer must:
- commit to investing in the asset between 13 December 2008 and 30 June 2009, 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 30 June 2010.
To qualify for the 10% bonus deduction a taxpayer must:
- commit to investing in the asset by 31 December 2009, 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 31 December 2010.
- commit to investing in an asset by 30 June 2009, 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 30 June 2010 but on or before 31 December 2010.
The table below summarises the key dates relating to the different rates at which the tax break could be claimed for taxpayers using standard income years.
| NEW INVESTMENT BY: | ||
| INSTALLED BY: | 30 June 2009 | 31 December 2009 |
| 30 June 2009 | 30% in 2008/09 | |
| 30 June 2010 | 30% in 2009/10 | 10% in 2009/10 |
| 31 December 2010 | 10% in 2010/11 | 10% in 2010/11 |
Date of effect
The amendments apply to assessments for the 2008/09, 2009/10, 2010/11 and 2011/12 income years.
Source: CCH Tax Week, Issue 11, 19 March 2009
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