February Bulletin – Investment Tax Break


February 28, 2009 1:50 pm Published by

Recently the government announced it will provide an additional $2.7 billion temporary tax break to businesses to boost investment via the introduction of a bonus tax deduction. The deduction will apply to the purchase of new tangible depreciating assets used in carrying on a business subject to the conditions outlined below. It is important for all clients to be aware of this opportunity in order to effectively plan for future capital expenditure and to maximise tax benefits.

Small Businesses
(turnover of $2 million a year or less)

Small businesses with turnover of $2 million or less a year will be able to claim a bonus tax deduction of 30% of the purchase price of eligible assets costing $1,000 or more that they:

  • acquire or start to hold under a contract entered into between 12.01am AEDT from 13 December 2008, or start to construct between these times; and
  • have installed ready for use by 30 June 2010.

Small businesses will be able to claim a bonus tax deduction of 10% of the purchase price of eligible assets costing $1,000 or more that they:

  • acquire or start to hold under a contract entered into between 1 July 2009 and 31 December 2010, or start to construct between these times; and
  • have installed ready for use by 31 December 2010.

Larger Businesses
(turnover greater than $2 million a year)

Larger businesses with turnover in excess of $2 million a year will be able to claim a bonus tax deduction of 30% of the purchase price of eligible assets costing $10,000 or more that they:

  • acquire or start to hold under a contract entered into between 12.01am AEDT from 13 December 2008 and 30 June 2009, or start to construct between these times; and
  • have installed ready for use by 30 June 2010.

Larger businesses will be able to claim a bonus tax deduction of 10% of the purchase price of eligible assets costing $10,000 or more that they:

  • acquire or start to hold under a contract entered into between 1 July 2009 and 31 December 2010, or start to construct between these times; and
  • have installed ready for use by 31 December 2010.

Example
Note this example applies to both small and large businesses as the cost of the asset is in excess of $10,000.

ABC Pty Ltd reports an accounting profit of $200,000 (before tax), and as such has recorded an income tax expense of $60,000 (30%). If ABC Pty Ltd had invested in an item of new equipment within the first specified Investment Tax Break period costing $100,000 it would be entitled to a 30% Investment Tax Break tax deduction of $30,000.

This can be illustrated as:

Net Profit (Before Tax) $200,000
Less Investment Tax Break $30,000
Taxable Income   

$170,000

Tax @ 30% $51,000

A tax saving of $9,000 (being $100,000 x 30% x 30%) compared to what the income tax liability otherwise would have been.

Eligible Assets

The Tax Break will apply to new tangible depreciating assets used in carrying on a business (conditions apply). Land and Trading stock are excluded from the definition of depreciating assets and will not qualify for the tax bonus.

Expenditures above the thresholds which are added to an existing asset will also qualify for the bonus.

Claiming the Tax Bonus

The deduction will be claimed through the income tax return in the income year in which the asset is purchased and/or installed ready for use.

We note that the above is not legislation as yet and we will update you with any further developments as they become available.

For further detail on which assets qualify for the tax bonus or if you have any queries on how this concession may apply to your business, please contact our office.


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