Most of you would have heard about the federal government’s recent economic stimulus Pharmacy and the package announced on 3 February. The Bill has since been passed on 13 February 2009 new Investment with amendments to the original tax break proposal and now just awaits Assent. Allowance The package has outlined various tax concessions and bonuses to individual and business taxpayers. The business tax breaks are aimed at promoting investment and hence at stimulating spending and in turn the economy. The small business tax break is available to pharmacies at two levels • those that qualify as a small business (with annual turnover of $2m or less) in relation to the acquisition of eligible assets of $1,000 or more; and • those with a turnover greater than $2m. These pharmacies can receive the same deductions for eligible assets with a cost greater than $10,000. It is important to determine your turnover level before making acquisitions. Any other businesses that you control (>50% ownership or voting rights) or who are ‘reasonably expected to act in accordance with your wishes’ with also be included in your turnover calculation. What is an asset? All new tangible assets or new improvement expenditure on existing assets used in carrying on a business will qualify with the exception of the following excluded assets: • Land • Trading stock • Intangibles and rights as such. Whilst computer hardware is included software is excluded, as it is not a tangible asset. • Capital works such as adding a new building, a room, garage, patio or pergola, gazebo, carport, sealed driveway, retaining wall or fence, removing or adding an internal wall, etc… Basically if you are able to claim a deduction for the depreciation under Division 40 of the tax act for the tangible assets then you will be able to claim the allowance. It is important to note that the asset must be new. New has been defined as assets that have not been used by anyone, anywhere. Therefore, in the case of motor vehicles used for business purposes they must be brand new in order to be eligible for the allowance. Having said that, demonstrator vehicles will be eligible provided that they have only been used for trialling or testing. The allowance will take the form of a tax deduction on top of the usual depreciation deduction for the income tax year in which it was purchased. The threshold test ($1,000 or $10,000) must be met on a per-asset basis. eg 20 stand Guild Accountants Pty Limited alone computers each costing $950 will not qualify despite total cost exceeding the Level 15, 1 York Street threshold. Sydney NSW 2000 Telephone 02 8220 1700 Facsimile 02 8220 1717 www.guildgroup.com.au Specific Assets: • Pharmacy Fit out or refit Structural improvements do not fall under the Division 40 rules in relation to depreciation; they are contained Division 43 and therefore fall out of the eligibility test for the allowance. Other components of a fit out however do fall under the definition of Division 40. These include stand alone, removable, non-structural components such as shelving, gondolas, dispensary systems, signage etc. Hence if you are undertaking a fit out of your pharmacy you should ensure that your quotes and/or invoices are as detailed as possible. Where items supplied are stand alone or removable they should be specifically named and priced in the invoice/quote. • POS Systems It is stated above that although purchased together, each asset should be assessed on a per-asset basis. It is our view that a POS system is just that – a system. Accordingly this would be viewed as one asset and be classified as an eligible asset. This view is on the basis that POS terminals take the form of integrated cash drawers or similar technology. Additional computers purchased from the same supplier for use for example in the back office may be viewed as separate assets. However it should be noted that software is not a eligible asset and if you are able to separately identify the cost of the software then this amount will be excluded. • Motor Vehicles The allowance available for a luxury car will be capped as a percentage of the luxury car depreciation limit. The maximum allowance available on a motor vehicle is $17,154. How much is the allowance? The following table outlines the important dates eligible assets must be acquired and installed in order to qualify for the additional tax deduction of either 10% or 30% (over and above the existing depreciation): Acquired after Acquired before end of: Installed before end of: Additional 30% deduction 13 December 2008 30 June 2009 30 June 2010 Additional 10% deduction 1 July 2009 31 December 2009 31 December 2010 So what does it mean for you? If you acquired and installed an item of plant on 12 February 2009 which has a cost of $15,000, and is fully used for taxable purposes, the available deductions will be as follows:- Standard depreciation (say Total claimable depreciation Year Additional depreciation (30%) 20% Diminishing value) claim 1st 3000 4500 7500 2nd 2400 - 2400 Remaining years 9600 - 9600 Total 15000 4500 19500 Other Issues • STS or SME taxpayers It would seem that the bonus tax deduction is not available to small business entities or STS taxpayers that claim their depreciation deductions using the general STS pool or the long life STS pool. If your turnover is less than $2m, you should check with your accountant to see if you are classified under this system. • Financing – Leases Where assets are under a lease (not a hire purchase), the lessee will not qualify for the allowance as they do not qualify for a depreciation deduction. The lessor however may be able to claim this allowance and any adjustment to the lease price should be part of commercial lease negotiations. Finance provided under asset purchase contracts should be eligible for the allowance. Future Developments The government has remained silent on some issues and we will keep you informed of any new developments surrounding mainly - If there will be an apportionment concept for assets used partly for business use and partly for private purposes? Where to from here? 1. Decide if you really do need to purchase assets now or in the near future. If you are already considering acquiring assets after 30 June 2009, if feasible if might be beneficial to bring this purchase forward to take advantage of the higher rates (30% instead of 10%). 2. If you have decided to purchase an asset is it an eligible asset: a. Is it tangible? b. Is it principal for use in your business? c. Is it non-structural? d. Are you entitled to a depreciation deduction under Division 40? e. Does it meet the threshold test? ($1,000 or $10,000)? 3. Based on your turnover, which asset threshold is applicable to you? a. Turnover < $2m - $1,000 b. Turnover >$2m - $10,000 c. If applicable, seek some advice on what is included in your group turnover 4. Which allowance are you entitled to? a. 30% Allowance Acquired between 13 Dec 2008 and 30 June 2009 Installed and ready for use by 30 June 2010 b. 10% Allowance Acquired between 1 July 2009 and 31 December 2009 Installed and ready for use by 31 December 2010. 5. Ensure that the investment allowance is treated correctly according to the method of finance that you use Ensure that you negotiate the right treatment for the finance that you are obtaining. Pharmacy owners are invited to contact Guild Accountants by email on firstname.lastname@example.org with any queries they may have on this issue.