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BUSINESS INVESTMENT ALLOWANCE

              

BUSINESS INVESTMENT ALLOWANCE

 

                                  WHAT IS AN INVESTMENT ALLOWANCE?

 

  • It is an additional, one off, tax deduction for new depreciating assets.
  • It is not accelerated depreciation.
  • It is not an increase in the depreciation cost base.
  • It is tax deduction not a tax rebate or refund.

 The May budget segregated the allowance into two tiers. 

 They are: 

  •  Business with a turnover under $2m and,
  •  Business with a turnover over $2m.

 

BUSINESS TURNOVER UNDER $2M

 

 For a small business under $2m the rate of the allowance is 50%. 

 Assets must have a net cost of at least $1,000. 

 An actual cash savings of up to 15% of the net cost of the asset for a company. 

 

BUSINESS TURNOVER OVER $2M

 

Businesses with turnover over $2m the rate of the allowance is either 30% or 10% depending on the timing. 

 Assets purchased before 30 June 2009 are at a rate of 30%

 Between 1 July 2009 and 31 December 2010 the rate is 10%

 Assets must have a net cost of $10,000 or more. 

 Actual cash savings of up to 9% of the next cost of the asset for a company

   

RESTRICTIONS - ALL BUSINESSES

 

  •   It only applies to new assets;
  •   A second hand car would not qualify!
  •   Leased assets do not qualify!
  •   Hire purchase does qualify!
  •   Software is not eligible!

 

                                                    TIMING

 When you are eligible for the deduction and the rate of the allowance depends on two things: 

  •       The date the contract/order is made
  •       The date that the asset is first used/installed

 The contract must be entered into between 13 December 2008 and 31 December 2009 and the asset must be installed within 12 months of the contract date.  The table below shows the rate and year for the deduction. 

 

 

First use

Contract

Date

Before 30/6/09

1/7/09-30/6/10

1/7/10 - 31/12/10

13/12/08 - 30/6/09

2009

   2010

 

1/7/09 - 31/12/09

 

  2010

 2011

 

Remember, this is not yet law.  It may change again before it is passed but there seems to be no objection to it in parliament. 

 

EXAMPLE

 

A business with a turnover under $2m buys a $20,000 asset and holds it for the entire year

 

 

Without allowance

With allowance

Depreciation $20,000 x 20%

4,000

4,000

Investment allowance

$20,000 x 50%

-

10,000

Total deduction

$4,000

$14,000

 

 

NOTE     Where the first use of the asset was on the first or last day of the year the investment allowance would remain the same.  Deprecation would need to be adjusted based on the days held. 

 

Full depreciation deductions over the life of the asset still apply.    

 

This proposed legislation and corresponding information is complex so if you need more detailed information, or require clarification, please contact our office. 

This article is not a substitute for independent professional advice. We do not warrant the accuracy, completeness or adequacy of the information or material in this article. All information is subject to change without notice. We and each party providing material displayed in this article disclaim liability to all persons or organisations in relation to any action(s) taken on the basis of currency or accuracy of the information or material, or any loss or damage suffered in connection with that information or material. You should make your own enquiries before entering into any transaction on the basis of the information or material in this article. Please ensure you contact us to discuss your particular circumstances and how the information provided applies to your situation.

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