P Small business and general business tax break

Show at P the deduction claimed for the small business and general business tax break.

It is considered that in most situations superannuation funds will not be eligible to claim the deduction. To qualify for the deduction the relevant asset must be used principally in Australia for the principal purpose of carrying on a business. Superannuation funds generally do not carry on a business, however, they will often be associated with a business which may be eligible.

The small business and general business tax break, in the form of an investment allowance, is available for expenditure on eligible new tangible depreciating assets. The tax break provides the following deductions for:

• small business entities (turnover of less than $2 million a year)
• • an additional tax deduction of 50% of the cost of eligible new tangible depreciating assets is available where the business
  • committed to investing in the asset between 13 December 2008 and 31 December 2009 inclusive
  • first used the asset, or installed it ready for use, or (in the case of new investment in an existing asset) brought the asset to its modified or improved state, on or before 31 December 2010.
   
• other business entities (turnover of $2 million or more a year)
• • an additional tax deduction of 30% of the cost of eligible new tangible depreciating assets is available where the business
  • committed to investing in the asset between 13 December 2008 and 30 June 2009 inclusive
  • first used the asset, or installed it ready for use, or (in the case of new investment in an existing asset) brought the asset to its modified or improved state, on or before 30 June 2010
  • an additional tax deduction of 10% of the cost of eligible new tangible depreciating assets is available where the business
  • committed to investing in the asset between 13 December 2008 and 30 June 2009 inclusive
  • first used the asset, or installed it ready for use, or (in the case of new investment in an existing asset) brought the asset to its modified or improved state, between 1 July 2010 and 31 December 2010 inclusive
  • an additional tax deduction of 10% of the cost of eligible new tangible depreciating assets is available where the business
  • committed to investing in the asset between 1 July 2009 and 31 December 2009 inclusive
  • first used the asset, or installed it ready for use, or (in the case of new investment in an existing asset) brought the asset to its modified or improved state, on or before 31 December 2010.
   

Generally, a business 'commits' to investing when:

• it enters into a contract under which the asset is held
• it starts to construct the asset
• it starts to hold the asset in some other way.

The tax break applies to new tangible depreciating assets for which a deduction is available under Subdivision 40-B of the ITAA 1997 and certain new investment in existing assets.

Cars will not be disqualified from the tax break merely because you use the 12% method.

Land and trading stock are excluded from the definition of depreciating assets, and will not qualify for the deduction.

It must be reasonable to conclude that the assets will be used principally in Australia for the principal purpose of carrying on a business.

The cost of an eligible new tangible asset includes amounts included in the first element of cost (worked out under Subdivision 40-C of the ITAA 1997), and amounts included in the second element of cost under paragraph 40-190(2)(a) of the ITAA 1997. New expenditure on existing assets may also qualify.

Small businesses can claim the deduction for eligible assets costing $1,000 or more. Small businesses must have a turnover of less than $2 million a year to qualify. For other businesses, a minimum expenditure threshold of $10,000 applies.

In order to meet the relevant threshold, a taxpayer can aggregate their investment in a set of assets, or in a group of assets where the assets in the group are identical or substantially identical.

Where assets are held jointly, a taxpayer can take into account the other business interests in the asset when determining whether the investment threshold test is satisfied. However, the taxpayer will only be able to claim the tax break on their interest in the asset.

Where a taxpayer has met the investment threshold for an asset, they can claim the additional investment in the asset as part of the tax break.

The tax break is on top of the usual capital allowance deduction able to be claimed for the asset.

Provided all of the eligibility criteria are satisfied, the deduction is claimable in the income year in which the asset is first used, or installed ready for use.