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Allowance Guide - Maclean Partners Townsville, Australia

By Herbert Mason,2014-05-18 06:37
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Eligibility Criteria 6 ? The investment commitment requirement. Small business entities will be entitled to the 50% Investment Allowance as long as they

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Contents

    The Investment Allowance for small business entities .........................................................................3

    Investment Allowance eligibility checklist for Small Business Entities ..........................................3

    Eligibility criteria 1 The purpose test ................................................................................................4

    Example 1.1 Asset used over 50% in the business ................................................................4

    Example 1.2 Asset purchased for use in a different activity to the current business ............5 Eligibility criteria 2 –Asset must be a ‘tangible’ asset ...........................................................................5

    Cars and the investment allowance .............................................................................................6

    Lease agreements .......................................................................................................................6

    Example 2.1 Leasehold improvements ..................................................................................7

    Novated Leases ...........................................................................................................................7

    Partnerships ................................................................................................................................7 Eligibility Criteria 3 Asset must be ‘new’ ...........................................................................................8

    Example 3.1 Demonstrator car ...............................................................................................8

    Eligibility criteria 4 Assets cannot be eligible for special deduction concessions.................................9

    Eligibility Criteria 5 The cost requirement .........................................................................................9

    Example 5.1 Sold/marketed as part of a set ...........................................................................9

    Example 5.2 Different assets, similar use ............................................................................. 10

    Example 5.3 Identical/substantially identical and SBE pooling .......................................... 10 Eligibility Criteria 6 The investment commitment requirement ....................................................... 10

    Example 6.1 Entering into a contract ................................................................................... 11

    Example 6.2 Constructing own asset .................................................................................... 12

    Eligibility criteria 7 The first use/installed ready for use requirement ............................................. 12

Please note

    The material and contents provided in this publication are informative in nature only. It is not intended to be advice and

    you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice

    should be obtained.

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The Investment Allowance for small business entities

The following information has been developed to assist clients ensure that they can maximise their

    use of the Investment Allowance. It is for information purposes only and does not cover your

    individual circumstances. You should seek our assistance before making any decisions based on this

    guide.

It is likely that the Investment Allowance will be clawed back by the Tax Office where you do not use

    the asset primarily in the business or where the asset is sold shortly after its purchase without a

    genuine business case.

The following checklist provides a snapshot of the eligibility criteria for the Investment Allowance.

    You can find further information on each of the items noted in the reference notes. You need to

    answer yes to each of the questions to qualify for the Investment Allowance. This guide only relates

    to entities that carry on business with an aggregated annual turnover of less than $2 million (referred

    to as small business entities). Different eligibility criteria and tax consequences apply to business

    entities with aggregated annual turnover of $2 million or more.

Investment Allowance eligibility checklist for Small Business Entities

    Eligibility Reference Yes

    ??The asset was (or will be) purchased by a business that is carried on in 1 Australia.

    ? The asset will be installed ready for use by a business carried on in Australia. 1

    ? The asset is a tangible asset (i.e. cannot be software, or other assets such as a 2 license or patent) that would normally be eligible for a depreciation deduction.

    ? The asset is new (or only used in a limited trial such as a demonstrator model 3 car).*

    ? The asset is not eligible for special deduction concessions for water facilities, 4 horticultural plants, some land care operations, and trees used in carbon sink forests.**

    ? The asset costs at least $1,000.*** 5

    ? You must have committed to buy/construct the asset (or make the additional 6 investment) between 12.01am, 13 December 2008 and 31 December 2009.

    ? You must have used the asset or had the asset installed ready for use by 31 7 December 2010.

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* The asset can be an additional investment to improve an existing asset. See item 1 for details.

    ** The asset cannot already be eligible for deduction concessions under Subdivision 40-F, 40-G, or 40-J of the

    Income Tax Assessment Act. See item 4 for details.

    *** It is possible to combine the cost of identical (or substantially identical) assets and assets that form part of

    a set in order to meet the expenditure threshold. See item 5 for details.

Eligibility criteria 1 The purpose test

To claim the Investment Allowance, you must be able to demonstrate that at the time you started to

    use the asset or had it installed ready for use, it was reasonable to conclude that the asset was going

    to be used principally in Australia for the purpose of carrying on a business in Australia.

    If the asset is used ‘for the principal purpose of carrying on a business’ (i.e. over 50%) then generally, the full Investment Allowance is claimable (but non-business use will limit the normal depreciation

    deductions available to you).

    Example 1.1 Asset used over 50% in the business John runs a charter boat business as a sole trader with a turnover below $2 million.

He purchases a new boat in May 2009 for $100,000 that will be used 80% in his charter business and 20% for

    personal use. The new boat is first used in the charter business in June 2009.

John will be entitled to claim the full 50% Investment Allowance in relation to the new boat in the 2008/09

    income year (i.e. $50,000 additional deduction) as the boat is used for the principal purpose of carrying on a

    business.

The standard depreciation deduction for this boat for the 2008/09 income year would be based on the business

    use (80%) and the number of days it was ‘used’ in the income year (June 2009).

The asset may be purchased for use in a business that was not operating at the time of purchase (i.e.

    it can be acquired for a future business). However, the person claiming the Investment Allowance

    needs to show that, at the time the asset was first used or installed ready for use for any purpose, it

    is reasonable to conclude they will use the asset in a business carried on in Australia.

Similarly, you can claim the Investment Allowance for an asset purchased for a different business

    activity to the one currently undertaken by your business as long as you meet the other

    requirements and the intent is to use the asset in a business carried on in Australia.

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Example 1.2 Asset purchased for use in a different activity to the current business

    John currently runs a boat repair business at the local marina. He is considering purchasing 2 boats to begin a

    charter boat business.

Provided the boats are used primarily in this business (and the other conditions are met), John will be able to

    claim the Investment Allowance in relation to the boats in the year they are first used or installed ready for use.

Eligibility criteria 2 –Asset must be a ‘tangible’ asset

To claim the Investment Allowance, the asset in question must be eligible for depreciation

    deductions under Division 40 of the Income Tax Assessment Act 1997 unless it is an intangible asset.

    Also, to be able to claim a deduction under Division 40, the entity must be the ‘holder’ of the asset.

    If you have entered into a lease agreement or a partnership, it will be important to make sure that

    the holder of the asset is the entity claiming the Investment Allowance.

The following assets are NOT eligible for the Investment Allowance on the basis that they are either

    not depreciable under Division 40 or they have been specifically excluded from being eligible for the

    Investment Allowance:

    ? Cars using the ‘cents per kilometre’ method

    ? Land

    ? Buildings

    ? Capital works expenditure (e.g. improvements to buildings)

    ? Trading stock

    ? Patents

    ? Registered designs

    ? Copyrights

    ? Licenses

    ? Software

    ? Intellectual property

    ? Water facilities

    ? Horticultural plants

However, some assets that are not depreciated under Division 40 may still be eligible for the

    Investment Allowance:

    ? Cars, where the car expense deduction is claimed under the ’12 per cent of original value’

    method;

    ? Tangible assets that are depreciated by a small business entity under the special pooling

    rules; and

    ? Tangible assets that receive a deduction under the research and development provisions.

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Cars and the investment allowance

    A car will be eligible for the Investment Allowance if car expenses are claimed under:

    ? The one third of actual expenses method;

    ? The log book method; or

    ? The 12% of original cost method.

A car will not be eligible for the Investment Allowance if car expenses are claimed under the cents

    per kilometre method. The following table summarises how the Investment Allowance can apply to

    cars:

    Car expenses claimed under following method… Eligible for Investment Allowance? One third of actual expenses Yes, provided over 50% business use

    Log book Yes, provided over 50% business use

    12% of original value Yes, provided over 50% business use