Investment allowance ends on 31 Dec 2009
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article on the Investment Allowance
Frequently asked questions
With the economy showing signs of recovery the Government’s temporary
investment allowance is unlikely to be extended beyond the current 31 December
2009 end date.
The investment allowance, giving an additional 50% tax deduction for small
businesses, and a 10% allowance for other businesses, is available for new
depreciable assets that a business commits to buy before 31 December 2009.
Eligibility
The item must be a new asset and a tangible asset. It must at the time of
purchase be used primarily for business purposes, and have a minimum cost of
$1,000 for small businesses and $10,000 for other businesses. To be a
“small” business your turnover needs to be less than $2m in the year of
purchase.
What is a business?
The investment allowance applies only to businesses, and you should be clear
about what being in business involves. For most trading entities this will
be clear, however entities that earn personal services income, or earn
income mainly from rent or leasing may not be eligible. If unsure, please
contact us to discuss your particular circumstances.
Investment time
The investment allowance legislation specifies that the “investment time”
must be before 31 December, 2009. We hear that some car dealers are having
trouble delivering cars prior to 31 December, so it will be important to
work out exactly what the “investment time” means. The ATO has stated that
the investment time is the time in which a contract has been entered into.
To secure the investment allowance, it is important to have entered into a
binding contract by 31 December. This contract should be in writing. Note
that leaving a deposit, or merely sending an order is unlikely to be deemed
a contract for the investment allowance. The ATO has also stated that where
an asset is purchased with hire purchase finance, the date of the finance
contract is the “investment time”.
Refer to the Investment Allowance Timeline.
Business use
If an asset is used by a business to provide a fringe benefit as part of a
salary package, the asset will be for business use, even if it is used for
private purposes. For example a car used exclusively by the spouse of an
employee. The investment allowance will be available to the employer in
these circumstances, however normal fringe benefits tax rules will apply.
Business use is determined at the time of purchase, and if eligible at that
time the full investment allowance will apply. The investment allowance is
not adjusted for subsequent changes in business use, although normal
anti-avoidance provisions will apply if schemes to create a tax benefit are
used.
Finance
Considering the type of finance is critical to protecting your investment
allowance. Finance leases are not recommended as the entitlement to the
investment allowance is retained by the lessor.
A chattel mortgage can be a better option, as with this type of finance the
legal holder of the asset is the borrower, not the lender. A chattel
mortgage can also be put in place in a separate contract after the asset has
been acquired from the supplier. In this case the initial supply contract
would determine the investment allowance eligibility.
Traditional hire purchase finance is also acceptable for the investment
allowance, but the “contract to purchase” is the hire purchase document. You
need to ensure that the contracts are in place well before the 31 December
deadline.
Call Saward Dawson
The eligibility for the investment allowance, and the benefit to be gained
from it will vary according to your individual circumstances. Our
professional team at Saward Dawson is available to discuss how your business
might benefit from this opportunity.
Published : 24 November 2009
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