Investment Allowance – Extra incentive for small business In December 2008 the Federal Government announced an investment allowance would be made available for businesses that purchase new plant and equipment. The allowance enables businesses to claim an extra tax deduction as a percentage of the cost of the new plant and equipment. The recent Federal Budget saw the Rudd Government expand the investment allowance for small businesses, while previous announcements regarding larger businesses remain the same. The legislation introducing this allowance has now been passed by Parliament. A small business is defined as one that has an annual turnover (i.e. gross income) of less than $2 million per annum. Based on the legislation now passed, the following rules apply to small businesses wishing to claim this allowance: • The investment allowance must be on new plant and equipment (not second hand equipment). • The assets purchased must be tangible assets. A new computer is fine, but software is not (it is an intangible asset). • The minimum spend on the cost of new plant and equipment for a small business is $1,000. • The taxpayer must own the new plant and equipment. • A business can finance the purchase of the new plant and equipment, provided the taxpayer has ownership of the plant and equipment. For example, financing using a loan or chattel mortgage is fine, but not a lease. • The investment allowance has been increased for small businesses from 30% of the cost of the new plant and equipment to 50% of the cost. • All new plant and equipment purchases committed to by a small business between 13 December 2008 and 31December 2009 are eligible for the investment allowance. • The new plant and equipment must be installed by 31 December 2010 to get the full allowance. • A small business can “aggregate” the costs of new assets that are essentially identical, or form part of a set, to meet the $1,000 threshold. When can you claim the investment allowance? This extra deduction is only available in the tax year the new plant and equipment is installed ready for use. This can be summarised as follows: When the asset is When the asset is first What tax year is the ordered installed for use deduction available? 1 June 2009 29 June 2009 30 June 2009 1 June 2009 14 July 2009 30 June 2010 1 September 2009 31 December 2009 30 June 2010 31 December 2009 31 August 2010 30 June 2011 Tip If you run a small businesses that is looking for extra tax deductions as part of your 30 June 2009 year end planning, the purchase of new plant and equipment for your business, and making sure it is ready for use by 30 June 2009, is worth considering. An Important Message While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general.