Federal budget gives small business an even bigger tax break

Businesses may now be able to claim up to a 50 per cent bonus income tax deduction for investment in new, tangible depreciating assets between 13 December 2008 and 31 December 2009. The Small Business and General Business Tax Break (the ‘Tax Break’) was first announced on 3 February 2009 as part of the government’s Nation Building and Jobs Plan and has now been increased for small business following the announcement of the federal budget.

To be eligible for the Tax Break, you must be able to demonstrate that the tangible, depreciating asset is used for the principal purpose of carrying on a business . A tangible, depreciating asset will generally have a limited life span, can be expected to lose value over time and has a physical presence. This may include machinery and equipment and even cars in some circumstances. For example, a landscaper may buy a new bobcat for his business. This is an asset that will lose value over time, will probably stop working one day and it is also something that can be touched. He may also buy some new design software for his business. The software is not a tangible depreciating asset – you can’t actually touch it as you can the bobcat.

If you are a small business, you will be able to claim a bonus tax deduction of 50 per cent of the cost of an eligible asset that you:

(a)        commit to investing in between 13 December 2008 and 31 December 2009; and

(b)        start to use or have installed ready for use by 31 December 2010.

If you are not a small business, you will be able to claim a bonus deduction of 30 per cent of the cost of an eligible asset that you:

(a)        commit to investing in between 13 December 2008 and 30 June 2009; and

(b)        start to use or have installed ready for use by 30 June 2010.

If you cannot meet the 30 June 2009 deadline, you may still be entitled to a bonus deduction of 10 per cent of the cost of an eligible asset that you:

(a)        commit to investing in between 1 July 2009 and 31 December 2009; and

(b)        start to use or have the asset installed ready for use by 31 December 2010.

You can commit to investing in an asset by entering into a contract under which you will hold the asset, or by starting to construct the asset.

To qualify for the 50 per cent deduction you need to meet the definition of a small business entity in section 328-110 of the Income Tax Assessment Act 1997. This generally means that you are carrying on a business that has an annual turnover of less than $2 million.

There is also a minimum investment threshold that applies in order to claim the deduction. Small businesses only need to invest a minimum of $1000 per asset in order to qualify for the Tax Break. All other businesses need to invest a minimum of $10,000.

However, all businesses can aggregate their investment in batches of assets that are identical, or substantially identical, and in sets of assets for the purposes of meeting the relevant threshold ($1000 or $10,000).

Provided all of the eligibility criteria are satisfied, you can claim the Tax Break as a tax deduction in your income tax return for the income year in which you start to use an eligible asset or have it installed ready for use.

For more information, contact an HIA Workplace Adviser on 1300 650 620.

_{The above is intended to provide general information in summary form. The contents do not consitute specific advice and should not be relied upon as such. Formal specific advice should be sought by members with respect to particular matters before taking action.}