FocusOn - Investment Allowances for business
The investment allowance was a temporary measure to provide incentive for businesses to invest in cars and equipment during the period of global economic crisis.
Assets acquired post 31 December 2009 are no longer eligible for this additional deduction. However, assets acquired before 31 December 2009 that are installed by 31 December 2010 are still eligible for this concession.
To qualify for the investment allowance, the assets must be:
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purchased and installed for use within a specific time frame (see discussion below) |
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utilised in Australia |
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utilised for the principal purpose of carrying on a business |
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new |
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a tangible asset normally subject to the depreciation (capital allowance) rules of Division 40 of the Income Assessment Tax Act 1997 |
Multiple identical assets can be used to meet the investment threshold, as can assets that form part of a set.
Eligible assets include most depreciable assets such as computers, cars and equipment. Specific exclusions are software, buildings, trading stock, land, capital works, goodwill, intangible assets and rights.
Small business 50% Investment Allowance
A small business is a business with less than $2 million turnover.
A small business entity can receive a 50% investment allowance on assets costing $1,000 or more ordered between 13 December 2008 and 31 December 2009 and ready for use by 31 December 2010.
Larger businesses 30% and 10% Investment Allowances
Businesses with a turnover greater than $2 million will be eligible for the 30% investment allowance on assets costing $10,000 or more ordered between 13 December 2008 and 30 June 2009. These assets must be installed ready for use by 30 June 2010.
If the assets ordered prior to 30 June 2009 are installed in the period 1 July 2010 to 31 December 2010, the investment allowance drops to 10%.
If the assets are ordered in the period 1 July 2009 to 31 December 2009, the investment allowance amount is 10%, and the asset must be installed by 31 December 2010.
The investment allowance will be claimed in the year in which the asset is installed.
Example
A small business that buys and receives a $30,000 new car before the end of June 2009 will be entitled to the following deductions:
| 2009 tax return | Investment allowance | $15,000 |
| 2009 tax return | SBE depreciation | 4,500 |
| Total claim | $19,500 |
After the first tax return is lodged, 65% of the cost of the car value has been allowed as a tax deduction.
After the second tax return is lodged, 95% of the car value will have been allowed as a tax deduction.
Over the life of the car, 150% will be an allowable deduction.
Exceptions
The following assets will not be eligible for the investment allowance:
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Leased assets (except luxury cars) |
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Cars using the ‘cents per kilometre’ method |
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Second-hand assets |
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Computer software |
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Rental property assets |
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Trading stock |
Frequently asked questions
The following is a sample of frequently asked questions on the new Investment Allowance. For more detailed advice, please contact your manager at Saward Dawson.
What if I don't meet the 2010 installation deadline?
If you are not a small business and you acquire or start to hold an eligible asset between 13 December 2008 and the end of June 2009 and miss the end of June 2010 installation deadline, you will miss out on the 30% bonus deduction. However, provided the asset is installed by the end of December 2010 you will still qualify for the 10% bonus deduction.
What does "new" mean?
The investment allowance is available for new, tangible depreciating assets or new expenditure on existing assets. "New" refers to assets that have not been used before by anyone, anywhere, except where an asset has only been used for reasonable testing and trialling.
Do cars qualify?
New motor vehicles used principally for business purposes are an example of the kind of assets that could qualify for the investment allowance.
Are demonstrator vehicles new?
Demonstrator vehicles can qualify as "new" assets in limited circumstances when they have only been used for reasonable testing and trialling. If you are considering purchasing a demonstrator vehicle, please call our office first as it may not be eligible for the investment allowance.
Will the car limit apply?
Yes. The car limit for 2008/9 is $57,180. This means that, at a tax rate of 30%, the maximum bonus deduction a small business entity is eligible to claim for a car in 2008/9 is $8,577.
Do buildings qualify?
No. The investment allowance is available for new tangible depreciating assets for which a deduction is available under the core provisions of Div. 40 (Income Tax Assessment Act 1997) and new expenditure on existing assets. Capital works covered by Div. 43 will not qualify for the investment allowance. (For more information, call your Saward Dawson manager.)
Will the investment allowance be reduced for non-business use?
Unlike depreciation deductions, the investment allowance is not apportioned for any non-business use of the asset. However, you will have to demonstrate that the asset is used in Australia and for the principal purpose of carrying on a business.
Will it bring forward the depreciation claims?
The investment allowance provides a bonus deduction rather than bringing forward normal deductions for depreciation. This means that over time a taxpayer could effectively claim deductions of up to 150% of the asset's value.
Will it affect capital gains tax?
No. The investment allowance will not affect the asset’s cost base or total capital gain or loss.
Published : August 2010