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So you have purchased an eligible asset for the Australian’ Federal Government’s Investment Tax Break.  The next question for your Accountant is…

When can you claim your deduction?

In Division 41 (41-115, 41-120, 41-125, 41-130 and 41-135) of the exposure draft of the legislation it is put in very complicated language… but for the rest of us this quote from Federal MP Craig Emerson (the Federal Member for Rankin and Minister for Small Business, Independent Contractors and the Service Economy) basically sums it up:

“The deduction is claimable in the income year that the asset is installed and ready for use”

Assuming your acquire (or start construction of) the eligible asset between 13 December 2008 and 30 June 2009 (so you qualify for the thirty percent tax break):

• If the asset is installed and ready for use by 30 June 2009, the 30% deduction is claimable in the 2008-09 income year
• If the asset is installed and ready for use by 30 June 2010, the 30% deduction is claimable in the 2009-10 income year
• If the asset is installed and ready for use after 30 June 2010 – you no longer qualify for the 30% investment tax break.

If you acquire (or start construction of) the eligible asset between 1 July 2009 and 31 December 2009 (so you qualify for the ten percent tax break):

• If the asset is installed and ready for use by 30 June 2010, the 10% deduction is claimable in the 2009-2010 income year.
• If the asset is installed and ready for use by 31 December 2010, the 10% deduction is claimable in the 2010-2011 income year. 

*Remember that the legislation still hasn’t passed parliament when this article was published – so don’t just take our word for it!  Make sure you speak to your accountant before making any decisions.

Generally there are a number of criteria your asset needs to meet to be eligible for the Tax Break:

• The asset needs to be new – not second hand
• You need to buy the asset between 13 December 2009 and 30 June 2009 (for the 30% tax break) or between 1 July 2009 and 31 December 2009 (for the 10% tax break)
• The asset needs to be a tangible depreciating asset
• The new investment needs to be greater than $1 000 ex GST for Small Businesses (Rev < $2mil), or greater than $10 000 ex GST for General Businesses, for each asset (or set of identical assets – review section 1.19 of the explanatory memorandum for more info)
• The asset needs to be used principally in Australia

… and obviously – if you don’t pay tax in the first place, you can’t claim a tax break!

If you want to get into the nitty gritty legalese – check out sections 1.11 though to 1.21 in the Explanatory Memorandum of the Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009.  Note that there are a few exceptions – especially when looking at Cars – so make sure you talk to your accountant!

Obviously – making a commitment like the 30% Small Business and General Business Tax Break has a significant impact on the Federal Government’s bottom line.

But how much of an impact will it have?

In the explanatory memorandum for the Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009, the Government clearly articulates the impact it thinks the bill will have over the next couple of years.

Financial Impact:  The amendments are estimated to have a total cost to Budget of $3.8 billion for 2009-10 to 2011-12

Further to this “big number” – they do provide a breakdown of the impact to tax revenue between now and the 2011-12 year

2007-08:  Nil

2008-09: Nil

2009-10: -$1,440m

2010-11: -$1,800m

2011-12: -$515m

It should be noted that this isn’t just the cost of the 30% Investment tax break that will be in place between 13 December 2008 and 30 June 2009, but also the reduced 10% Investment tax break that will be in play from 1 July 2009 through until 31 December 2009.

If you have read anything about the Federal Government’s proposed 30% investment tax break – I am sure you would know that there are two “tiers” under which your business could qualify for the tax break.  Depending on the size of your business, this could have a significant impact on what your business could claim under the tax break.

To find out if your business qualifies for the 30% tax break, lets take a look at what has been said in parliament.  As mentioned by the Treasurer – Wayne Swan – when he introduced the Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009 into the House of Representatives…

Small business entities need to invest a minimum of $1,000 to qualify for the tax break.  All other businesses need to invest a minimum of $10,000

Which begs the next question… what is the definition of “Small Business”.  The good news is that this is defined in the Explanatory Memorandum of the bill.

In section 1.76…

A taxpayer is a small business entity for an income year, rather than at a point in time.  Section 328-110 provides that a taxpayer is a small business entity for the current income year if they:

• carried on a business during the previous year and their aggregated turnover for that year was less than $2 million; and
• expect their aggregated turnover to be less than $2 million again in the current income year

To read more about the difference between a small business and a general business under the Small Business and General Business Tax Break – make sure you read through the Explanatory Memorandum

Whilst the Federal Government announced the 30% Investment Tax Break for Small Businesses and General Businesses back on 3 February 2009, the legislation that supports that announcement has yet to pass through the Australian House of Representatives and the Senate to become law.

The fastest way to find out the current status of the Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009 is to visit the ParlInfo site.  You can not only find out the current status of the bill before parliament, but you can also read any documentation regarding its journey towards becoming law.

The current status of the bill (as at 1 May 2009) is that it is currently before the House of Representatives (the originating house).  The House of Reps do not sit again until 12 May 2009 – so make sure you check back regularly then – or simply subscribe to our email updates which will let you know once the bill has been passed by both the House of Representatives and the Senate.

The Australian Treasury released the exposure draft of the proposed 30% Investment Tax Break legislation on 23 February 2009.

The 12 page document outlines the specific changes to the Income Tax Assessment Act 1997, including the addition of Division 41.

The object of this Division is to provide a temporary business tax break for Australian businesses with a view to encouraging business investment and economic activity

You can download the exposure draft of the legislation from the Treasury.gov.au website