On 12 December 2008, the Government announced an initiative to boost economic activity, in the form of an investment allowance. The investment allowance is an additional 10 percent tax deduction for new tangible depreciating assets. This concession is temporary.
The measure is estimated to cost the Commonwealth $1.6 billion.
What is the investment allowance?
- The allowance will be in the form of an additional tax deduction equal to 10 percent of the cost of an eligible asset, that is, a 10 percent tax deduction on top of tax deductions allowed under the current capital allowances (depreciation) provisions.
When does the investment allowance apply?
- The investment allowance will be available for assets held under a contract entered into and assets commenced to be constructed between 12.01am AEDT 13 December 2008 and 30 June 2009.
- The asset needs to be installed and ready for use for a taxable purpose by 30 June 2010 in order for the investment allowance to be claimed. This represents a very narrow window for the concession.
- It can be claimed through the income tax return in which the first capital allowance is claimed for the asset.
- The amount did not contain any proposed restrictions upon claims by finance entities.
- There was no comment on eligibility for assets where the end user is in the public sector or is a non-resident. However, one would expect rules to disallow or to limit the allowance in such circumstances.
What assets qualify?
- The investment allowance will apply to tangible assets used in carrying on a business for which a deduction is available under the core capital allowances provisions, ie. Subdivision 40-B of the Income Tax Assessment Act 1997.
- The expenditure must be on new assets or new expenditure on existing assets. Assets previously used or held for use will be excluded.
- Cars are not excluded.
What assets do not qualify?
- The investment allowance is not available for intangible assets and certain rights.
- Further, land and trading stock do not constitute depreciating assets and therefore do not qualify.
- Capital works (building allowances) which are claimed under Division 43 of the Income Tax Assessment Act 1997 do not qualify.
- Assets for which a tax deduction can be claimed under other subdivisions of Division 40 do not qualify (eg software development pools).
What is the minimum cost?
- The investment allowance will be available on new assets which cost more than $10,000.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.