Updated Advice Regarding the Investment Allowance 30% and 10%
Please note: This is a summary of an AELA Advice only and is intended for general information purposes only, and should not be construed as professional advice. Readers should seek professional advice from their accountants.
Eligibility – 30% Investment Allowance:
1. Purchases of new and used, tangible depreciating assets used in carrying on a business.
2. Small businesses turning over $2 m per year or less – minimum cost price excl GST is $1,000.
3. Other businesses turning over $2 m per year or more – minimum cost price excl GST is $10,000.
4. Asset to be acquired between 13th December 2008 and 30th June 2009 and installed by 30th June 2010.
5. Allowance is provided as an additional tax deduction. Clients claim 130% of the cost price with an outright 30% deduction claimable in the income year in which the asset is installed ready for use, and the remaining 100% over the effective life of the asset.Eligibility – 10% Investment Allowance:
1. Purchases of new and used, tangible depreciating assets used in carrying on a business.
2. Small businesses turning over $2 m per year or less – minimum cost price excl GST is $1,000.
3. Other businesses turning over $2 m per year or more – minimum cost price excl GST is $10,000.
4. Asset to be acquired between 1st July 2009 and 31st December 2009 and installed by 31st December 2010.
5. Allowance is provided as an additional tax deduction. Clients claim 110% of the cost price with an outright 10% deduction claimable in the income year in which the asset is installed ready for use, and the remaining 100% over the effective life of the asset.
Hire Purchase and Chattel Mortgage Contracts
Clients claim the investment allowance as long as they are not prohibited from claiming capital allowances.
Finance Lease Contracts
Treasury are still to clarify whether financiers (lessors), will be able to transfer the investment allowance to clients (lessees) in the event of finance lease transactions as was the case with the old investment allowance scheme.
In the event that lessors are unable to transfer the investment allowance to lessees, it is anticipated the clients should received the benefit of funders being able to claim increased depreciation in the form of lower rates.
Further clarification is required.
Timeframes in relation to Legislation
Draft legislation should be available in mid to late January for consultation with industry.
Treasury anticipates legislation will be introduced into Parliament in February 2009.
Investment Allowance Details
Depending on the timing of their capital purchase, clients can claim either 130% or 110% of the asset cost over the life of the asset which is split up into a 30% or 10% outright deduction at the time the asset is installed ready for use and then 100% over the remaining effective life. This is available to the taxpayer who is entitled to capital allowance deductions under Division 40 of the Income Tax Assessment Act.
Clawbacks for Early Disposal
No clawback proposal has yet been put forward. Under the old investment allowance rules however, the client had to hold the asset for a minimum of 12 months.
Further clarification is required.
Timeframes in relation to Equipment Purchases
To be eligible to receive the 30% investment allowance, order and delivery should have occurred after the 13th of December 2008 and before 30th June 2009 with the asset installed and ready for use no later than 30th June 2010.
In order to be eligible to receive the 10% investment allowance, order and delivery should have occurred after the 1st July 2009 and before the 31st December 2009 with the asset installed and ready for use no later than 31st December 2010.
Equipment Use in Australia
No real clarity on assets that are located overseas but generate income in Australia.
Further clarification is required.
Minimum Cost Price and Small, Multiple Asset Purchases
Minimum cost price to be eligible for the investment allowance is $1,000 exclusive of GST for small businesses turning over $2 million per annum or less and $10,000 exclusive of GST for businesses turning over $2million per annum or more.
The $1,000 or $10,000 cost threshold is based on the definition of ‘cost’ for depreciation purposes.
The minimum cost threshold is based on a per asset basis. Eg if a client turning over more than $2m per annum purchases 10 computers for $3,000 each although the total cost is above $10,000, the threshold is applied to each computer therefore the purchase would be ineligible for the investment allowance.
Computer Software & Hardware
Computer Software is ineligible since it is considered an intangible asset. Computer Hardware is eligible for the investment allowance.
Luxury Cars
The investment allowance will be capped to the luxury car limit.
Sale and Leasebacks
Treasury advised that if a new piece of equipment is the subject of a sale and leaseback transaction, the investment allowance would be available. There is no definition of ‘new’ however.
AELA have requested clarification on this matter, particularly in relation to the scenario where an asset can be imported and then used for a short period of time for testing purposes before being subject to a sale and leaseback. They noted that under the previous investment allowance scheme, if the asset was acquired within 6 months from the time construction was completed and imported then the asset was considered effectively new.
Further clarification is required.
Private and Business Usage & Novated Leases
Treasury are still considering whether there will be apportionment of the investment allowance for business vs private usage.
Further clarification is required.
Record Keeping
Treasury suggested there would not be onerous record keeping requirements given the temporary nature of the proposed investment allowance.
Demonstrator Vehicles
Used equipment is now confirmed as being eligible for the investment allowances hence demonstrator vehicles are also eligible.
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