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Investment allowance, depreciation and capital allowances

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The Government has issued a new $4.7bn economic package to stimulate business investment and encourage capital expenditure.

As part of this the Government has introduced the following ‘capital investment allowances’ in relation to ‘depreciable assets’ (plant, equipment and motor vehicles) acquired between 13 December 2008 and 30 June 2009. To be eligible the assets must be ‘installed ready for use’ by 30 June 2010. This means:

  • ‘Small businesses’ acquiring assets costing more then $1,000 will be allowed an additional tax deduction of 30 per cent of the assets’ cost; and,
  • ‘Other businesses’ acquiring assets costing more than $10,000 will be allowed an additional tax deduction of 10 per cent of the assets’ cost.
  • Before preparing financial statements and income tax returns there are some issues that need to be addressed as a single asset might be subject to various depreciation treatments and may or may not be allowed the ‘investment allowance’ claim

These are some of the issues:

  • The assets need to be ‘new’
  • The ‘investment allowance’ is available where the depreciation claim is prepared under the depreciation provisions of Div 40 of the Income Tax Assessment Act 1997 (Cwlth)
  • ‘Capital works’ do not qualify for the allowance (these claims are prepared according to Div 43 of the ITAA Act)
  • A ‘small business entity’ which chooses to claim depreciation according to the ‘simpler depreciation rules’ (Subdivision 328-D of the ITAA Act) will not be able to access the allowance. Therefore a ‘small business entity’ will need to elect to use Div 40 of the ITAA Act in relation to these assets
  • The investment allowance is not ‘accounted for’ in the financial statements. It is a deduction which is claimed only in the tax return. Therefore, there will be a difference between accounting profit and taxable income
  • It is also possible for a business to maintain a depreciation schedule for accounting purposes and a separate depreciation schedule for tax claim purposes.

Note for car buyers
As only new cars are eligible for the new investment allowance, it may now be better to buy new business cars.

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