Bill broadens eligibility for business investment tax break

The Rudd Government’s investment allowance contains a number of concessions that broaden eligibility for the business tax break

The Bill tabled into Federal Parliament to introduce the Rudd Government’s investment allowance contains a number of concessions that broaden eligibility for the business tax break, according to PricewaterhouseCoopers (PwC).

PwC notes that in a "substantial concession" the Bill provides that a taxpayer may aggregate the following in determining whether the $10,000 (or $1,000 in the case of a ‘small business entity’) threshold has been met, provided that the expenditure satisfies the ‘investment commitment time’ criteria.

In order to claim the allowance at the 30 percent rate, the contract for acquisition or commencement of construction must occur between December 13, 2008 and June 30, 2009, and the asset must be first used or installed ready for use before July 1, 2010. The 10 percent rate will apply where the 'investment commitment time' is between December 13, 2008 and June 30, 2009, and the first use is after June 30, 2010 but before January 1, 2011.

If these criteria are satisfied, a business may aggregate:

  • An amount incurred in a previous year in respect of the asset
  • An amount incurred on an asset that is part of a set. An example is a two-way radio system where the base station and the hand-held radio units would be regarded as a set – although a lawn mower, brush cutter and leaf blower will not be deemed a set of assets
  • Amounts incurred in acquiring assets which are identical or substantially identical. An example is the purchase of shelving where each unit is identical
  • Where an asset is held jointly, amounts incurred by all the joint owners in acquiring their interest in the asset.

PwC says these changes are expected to open the allowance to a wider range of taxpayers than was initially expected, particularly in the retail and property sectors.

"Retailers may wish to review proposed new store openings or refurbishments over the next couple of years, and where feasible, enter into contracts for acquisition on or before 30 June, 2009 so that the ‘investment commitment time’ requirement to be in a position to potentially obtain the 30 percent allowance is satisfied," the firm states.

"Many items acquired under such a fit-out will be treated under the tax law as a ‘depreciating asset’ and where these items are installed by 30 June, 2010, the 30 percent allowance may be available.

"The benefit of the new aggregation proposal in the case of a fit-out by a business retailer is that the cost of identical (or substantially identical) depreciating assets can be aggregated in determining whether the expenditure threshold is satisfied as can the cost of items comprising a set of assets."

In the case of property owners, PwC says an issue to consider will be whether the property owner’s activities amount to the carrying on of a business.

"If the business activity test is satisfied in respect of the property owner, then the [above] issues would equally apply, in cases where the fit-out remains held by the property owner as a depreciating asset. If the activity is not regarded as a business, it may be more advantageous for the fit-out to be owned (and held) by the tenant, with the benefit of the investment allowance to the tenant being taken into account in negotiating lease incentives and the terms of the lease," the firm says.

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