Tax Break (30%) allowance
While there has been a lot of talk and media interest concerning this Tax Break, the legislation is yet to be passed by Parliament. The legislation is tabled for discussion when Parliament resumes on 12 May 2009.
However, we have outlined below the intended operation of the 30% Tax Allowance based on the draft legislation and government announcements to date.
The Tax Break will be available for investment in new tangible, depreciating assets. That is plant & equipment which are generally subject to depreciation. It also applies to new investments in existing assets.
The Tax Break is a bonus tax deduction that will be allowable in your income tax return. This is in addition to the normal depreciation that would apply to the asset. In effect you can claim 130% of the cost of qualifying assets.
The 30% Tax Break applies to assets acquired or commenced to be constructed under contract entered into between 13 December 2008 and 30 June 2009. The asset must then be first used or installed ready for use by 30 June 2010. So you must enter into a legally binding contract for purchase before 30 June 2009 even if delivery/installation occurs after that date but before 30 June 2010.
If you cannot meet the 30 June 2009 deadline, you may still be entitled to a 10% Tax Break if you acquire a relevant asset after this date but before 31 December 2009 and first use the asset or have it installed ready for use before 30 June 2010.
When you first use the asset it must be reasonable to conclude that you will use the asset principally in Australia for the principle purpose of carrying on a business. This raises some issues concerning assets that may have both a business and personal use such as a motor vehicle. Acquisition of a motor vehicle with less than 100% business use will still qualify for the full 30% Tax Break in certain circumstances – please consult us should you be considering such purchase.
The Tax Break is available to the owner of the asset for depreciation purposes. This raises issues mainly where leases are involved. In some lease arrangements, the lease company, and not the lessee taxpayer, will be deemed the owner for depreciation purposes. Please consult with us should you be using lease or equipment finance to acquire an asset.
Small businesses (turnover generally less than $2mill) need to spend at least $1,000 per asset to qualify. All other businesses need to invest at least $10,000 per asset to qualify.
The above information is intended to introduce the 30% Tax Break. Not all assets will qualify for this Tax Break. Should you be considering purchase of an asset and wish to know if the Tax Break will apply to you, please contact Peter Lever on (02) 9999 2344.