Budget boost for the investment allowance

The Federal Budget, released on 12 May 2009, included an increase in the value of the much heralded investment allowance for small businesses.

The allowance operates as follows:

• small businesses (ie. businesses with a turnover of $2 million a year or less) can claim the tax break for acquisitions of assets costing $1,000 or more

• for all other businesses the asset threshold is $10,000

• small businesses will now be entitled to claim a 50% tax deduction for eligible assets acquired from 13 December 2008 to 31 December 2009 which are installed ready for use by 31 December 2010

• all other businesses will remain entitled to claim a 30% tax deduction for eligible assets acquired from 13 December 2008 to 30 June 2009 and installed ready for use by 30 June 2010

• the 30% rate will fall to a 10% deduction in respect of qualifying assets acquired from 1 July 2009 to 31 December 2009 and installed ready for use by 31 December 2010

The allowance will only apply to new tangible assets or improvements to existing assets. Further, they must be subject to the capital allowance (or depreciation) provisions. The allowance will not apply to trading stock, land or capital works that are subject to a building allowance. Intangible assets, such as software, remain outside the scope of the tax break.

The tax break is not available for costs that would be deductible as repairs.

The deduction is allowable in the year in which tax depreciation is first claimed for the expenditure, which will be in either the 2009 or 2010 year of income.

This tax break potentially presents a valuable opportunity for businesses. However, urgent action is required to access the most generous element of the concession. Other than for small businesses, an investment commitment that satisfies the tax law must be made by 30 June 2009 to obtain the full 30% enhanced deduction.

For further information, please contact your usual Grant Thornton representative.

Author: Peter Godber, May 2009

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