“The government is trying to provide a shot of adrenalin into the arm of the Australian economy, and businesses – whether they are large miners or small businesses – should take advantage of it,” corporate advisory group BDO Kendalls’ director, Russell Garvey, said.
“Taxation advantages alone shouldn’t drive investment decisions, but if businesses are considering capital expenditure programs, this is a free kick from the government.”
The original proposed small business and general business tax break allowance package announced in February was amended prior to being released in March, with the final version having an increased amount and scope.
The revised allowance provides a 30% tax deduction for new tangible depreciating assets acquired under a contract, or started to be constructed between December 13, 2008 and June 30, 2009 and installed before June 30, 2010.
An additional tax deduction of 10% is also on offer for companies that miss the deadline and purchase new depreciating assets between July 1, 2009 and December 31, 2009 and installed ready for use by the end of December 2010.
“It is a genuine bonus from a tax perspective, but once June 30 passes, the taxation advantages diminish considerably and, come December 31, they will be gone,” Garvey said.
He said the combination of a June 30 deadline and the increasing amount of time financial institutions are taking to approve and provide finance, means businesses should move sooner rather than later to take advantage of the temporary benefits.
“Our advice is to start looking at this early,” he said.
“That will give the business time to establish the business case for the investment and the business plan for the company.
“If you leave it too late, it could mean the difference between 30 per cent and 10 per cent, or 10 per cent and nothing.”
Land, trading stock, second-hand items and intangible assets such as computer software are excluded from the definition of depreciating assets, and do not qualify for the deduction.
However, cars are considered for the allowance, as are leased assets.
To be eligible a small business must have an annual turnover of $A2 million a year or less and purchase an eligible asset of $1000 or more.
All other businesses need to invest a minimum of $10,000.
Businesses are also allowed to combine the value of batches of identical assets to meet the investment threshold.
“This deduction is on top of the usual capital allowance deduction claimable for the asset in the taxpayer’s income tax return,” Garvey said.
“It does not affect business’ ability to claim depreciation on the full amount of the asset.
“The tax break will provide a bonus deduction rather than bringing forward normal deductions for an asset’s decline in value.
“This means that, over time, a taxpayer could effectively claim deductions of up to 130 per cent of the asset’s value.”
Provided all of the eligibility criteria are satisfied, the tax break can be claimed as part of an income tax return for the income year in which businesses start to use the asset or have it installed ready for use.
An example is a business that buys and takes possession of a $60,000 backhoe by the end of June 2009 can claim an $18,000 deduction in its 2008-09 tax return.
This $2.7 billion business tax break is a key element of the government's $42 billion Nation Building and Jobs Plan to support Australian jobs.
“If any equipment looks like it will require an upgrade in the next 12 months, now is the most tax effective time to make that upgrade,” Garvey said.