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50 per cent investment allowance

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The Federal Government has recently passed the 50 per cent investment allowance and it is now law.

The increased investment allowance is now 50 per cent for small businesses and increases the business tax break for NEW assets purchased between
13 December 2008 and 31 December 2009.

The increased investment allowance of 50 per cent applies to businesses with a turnover of less than $2m. For all other businesses, the previously announced 30 per cent (to 30 June 2009) and 10 per cent (from 1 July 2009) investment allowances continue to apply.

The allowance will be offered on almost all new plant and equipment, vehicles and other assets costing over $1,000. The investment allowance will be confined to new assets and new expenditure on existing assets, used in Australia. Assets that have previously been used or held for use will be excluded.

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

There is a significant misconception in relation to this new investment allowance, as it is often overstated by sales people. The 50 per cent investment allowance is essentially an additional tax deduction, which is different to a 50 per cent tax refund as it is often promoted.

Here is an example highlighting the tax benefits of buying a new $44,000 car, when the business is registered for GST with a tax rate of 30 per cent.

The allowance will be claimed through the income tax return in which the first depreciation is claimed for the asset. As only new cars are eligible for the new investment allowance, it may now be better to buy new business cars rather than used cars but please contact us first because there may be other implications to consider, including Fringe Benefits Tax (FBT).

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