Pharmacy and the new Investment Allowance by lindayy


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									                                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
                                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
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
•	 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
   •	 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 with any queries they may have on this issue.

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