Upcoming Mallesons seminarsTaxpayers who incur expenditure on new tangible, depreciating assets from 12 December 2008
What do you need to do?Review the exposure draft legislation and explanatory materials to determine the extent of impact on the current tax treatment of depreciating assets and, if necessary, seek to make a submission to Treasury prior to 10 March 2009
Betsy-Ann Howe
Partner
T +61 2 9296 2408
David Wood
Partner
T +61 3 9643 4310
The Treasurer has released for public comment the draft legislation and explanatory materials for the Small Business and General Business Tax Break announced on 3 February 2009 as part of the Government’s Nation Building and Jobs Plan.
In broad terms, the Tax Break will provide a temporary investment allowance of up to 30 per cent to small business (turnover of $2 million a year or less) for eligible capital investments of $1,000 or greater, and for other business for capital investments of $10,000 or more. The Tax Break subsumes the 10 per cent temporary investment allowance announced by the Treasurer on 12 December 2008.
Submissions from interested parties on the exposure draft legislation and explanatory material are due by close of business on 10 March 2009.
Entitlement to deduction
The Tax Break will take the form of a bonus tax deduction and will apply to new investment in tangible, depreciating assets for which a deduction is available under the core provisions of Division 40 of the Income Tax Assessment Act 1997 (1997 Act). Expenditure on intangible assets, land and trading stock, and expenditure on second hand assets, will not qualify for the Tax Break.
The Tax Break is available where a business acquires an eligible asset on or after 12 December 2008 but before 31 December 2009 and has it installed ready for use no later than 30 December 2010. Where the eligible asset is acquired before 30 June 2009 and is installed ready for use before 30 June 2010 the bonus deduction will be 30 per cent of the cost of the asset (exclusive of GST). Otherwise the deduction will be 10 per cent of the cost of the asset.
Importantly, the Tax Break will not change a taxpayer’s normal deductions for an asset’s decline in value. The Tax Break will be available in the year of acquisition and will be in addition to any capital allowance deductions available under Division 40, with the result that over time a taxpayer could effectively claim deductions of up to 130 per cent of the asset’s value.
The Tax Break will not impact upon balancing adjustments and should not affect the tax treatment of an asset upon disposal. In particular, there will be no ‘claw back’ or recapture of the Tax Break upon a subsequent sale of the eligible asset.
There are special provisions in the draft legislation dealing with small business taxpayers and eligibility for the Tax Break.
Leased assets
Assets held under leases should qualify for the Tax Break provided that the asset being leased is a new, tangible depreciating asset for which a deduction is available under the core provisions in Division 40. The entitlement to claim the bonus deduction in a leasing situation will follow the framework provided in Division 40 for determining who in a leasing arrangement is entitled to claim capital allowances deductions.
Non-business use concessions
One of the more interesting features of the draft legislation is that the Tax Break, unlike existing capital allowances deductions under Division 40, will not be apportioned for any non-business use. However, a taxpayer must be able to demonstrate that at the time they started to use the asset or had it installed ready for use, the asset was used in Australia and for the principal purpose of carrying on a business.
More importantly, the Tax Break will not be clawed back for any subsequent non-business use or disposal of the asset provided that the purposes test described above was satisfied at the time the taxpayer started to use the asset or had it installed ready for use.
Click here to view the Treasurer’s Press Release (No.018) in relation to the Small Business and General Business Tax Break.