Investment Allowance for Businesses
For those that are running businesses and want an incentive to go purchase some new depreciable assets for the business, read on.
As part of the federal government’s stimulus package, it has announced a “temporary tax break” for Australian businesses to encourage those businesses to make new capital purchases.
The tax break is in the form of a “one off” additional deduction on the cost of the eligible capital purchases. The additional deduction is on top of the existing entitlement of depreciation and/or write off permitted on that capital purchase cost.
For eligible capital purchases that are acquired between 13 December 2008 and 30 June 2009 and installed by 30 June 2010, the additional deduction is equal to 30% of the acquisition cost.
For eligible capital purchases that are acquired between 1 July 2009 and 31 December 2009 and installed for use no later than 30 June 2010, the additional deduction is equal to 10% of the acquisition cost.
The amount required to be spent on new capital purchases to be eligible for this tax break depends on whether the business is a small business or not. A small business is one that has a turnover of less than $2 million per annum.
- For small businesses, the minimum acquisition cost must be $1,000.
- For all other businesses, the minimum acquisition cost must be $10,000.
Note the federal government’s announcement is that it must be expenditure on new assets, not second hand assets. A number of clarifications will come out once the government introduces legislation, such as whether new assets include “demonstrator” assets.
Also note that assets will include cars that are used in the business.
To illustrate, let say you are a small business and want to purchase a new desktop computer for $2,000 on 1 March 2009. Potentially, your tax deduction for the 30 June 2009 year could be:
a) Depreciation on the computer
- Say written off over 4 years straight line $ 125
b) Investment Allowance – 30% of the cost $ 600
Total Deduction $ 725
It is worth keeping the above in mind for 30 June 2009 year end planning.
Tags: Depreciation, stimulus package