Investment Allowance – Extra incentive for Small Business

As reported in our last newsletter, the federal government announced in December 2008 an investment allowance would be made available for businesses that purchase new plant and equipment.  The allowance would enable 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, whilst the previous announcements for larger businesses remain the same.  The legislation introducing this allowance has now been passed by parliament, so all systems are go on this extra deduction.

Remember a small business is defined as one that has an annual turnover (ie gross income) from carrying on a business of less than $2.0 million.

Based on the legislation now passed, what are the rules for small business 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. So a new computer would be fine, but software is not (as it is an intangible asset).
  • The minimum spend on the cost of new plant and equipment is $1,000 for small businesses. It’s $10,000 for larger businesses.
  • 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 by way of 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.
  • The purchase of all new plant and equipment committed to by a small business between 13 December 2008 and 31December 2009 will be available to this investment allowance.
  • The new plant and equipment will need to 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.

What tax year can you claim the investment allowance?  This extra deduction will only be available in the tax year the new plant and equipment is installed ready for use. This can be summarised as follows:

When is the Asset Ordered

When is the asset first installed for use

What tax year is the 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


So for those carrying on small businesses that are looking for extra tax deductions as part of their 30 June 2009 year end planning, purchasing new plant and equipment for your business and making sure you have it ready for use by 30 June 2009 is worth considering.

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