30% Investment allowance for small businesses

Fir information on 2009 Budget changes ==> 50% Investment Allowance

With the intention of driving more business investment during the current economic environment, the Australian federal government has launched a temporary 30% investment allowance valid for most new assets either ordered or acquired between 13 December 2008 and 30 June 2009.

For assets acquired between 1 July 2009 and 31 December 2009 the investment allowance will be 10%.

For example, a $50000 new asset acquired on 13 May 2009 would attract a one off tax deduction of $15000 in the 2008-09 income tax return, in addition to the normal depreciation allowance claimed.

The tax break will be available to small businesses (with an annual turnover of $2m or less) for purchasing eligible assets of $1,000 or more. Other businesses can receive the same deductions for eligible assets with a cost greater than $10,000 (Treasury media release No. 012).

The tax breaks will apply to new tangible assets or new expenditure on existing assets used in carrying on a business, for which a deduction is available under the uniform capital allowances provisions of Division 40 of the ITAA 1997. More specifically, the deduction will be available for depreciating assets under section 40-30 that qualify for capital allowances under Subdivision 40-B, except for the following intangibles and rights: mining, quarrying or prospecting rights and information; intellectual property; in-house software; IRUs; spectrum licences; datacasting transmitter licences, and telecommunications site access rights (Treasury media release No. 012).

A criticism of the initiative is that, although it will create a positive cash flow, it requires an outlay of funds in order to achieve that. For example, a $1000 investment will generate a tax saving of $90 (ie. 1000 x .3 x marginal tax rate of 30c). Some commentators suggest it will be of little value to small businesses.

David Maynard

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