Cashing in on the 50% rebate – here’s how to do it

Businesses with annual revenue of less than $2 million are being urged to take advantage of the Government’s increased investment allowance announced in the federal budget.

Federal Treasurer Wayne Swan said that the allowance will be extended from 30% to 50% for assets purchased by eligible businesses – but second hand items are out of the question.

Greg Hayes, senior partner at tax firm Hayes Knight, says businesses would be smart to cash in on the increased allowance, because this is the highest rate it will reach.

“I’d be surprised to see them increase it any more, as 50% is a significant figure. It’s a great initiative for those businesses earning under $2 million in turnover,” he says.

“Anybody who purchased an asset between 13 December 2008 and the end of this year, 31 December 2009, providing the asset is installed by 31 December 2010, will get a 50% investment allowance.”

Hayes says the extended concession, which is still subject to its original legislation, applies to depreciating tangible assets subject to tax deductions under Division 40 of the Income Tax Assessment Act, that are over $1000 in value.

“Things like software and paying someone to put a website together – that won’t qualify. It has to be a tangible asset, such as a laptop computer,” he says.

Mark Northeast, partner at Pitcher Partners, says that what businesses can claim will vary from industry to industry.

“The concession will apply to most things that are depreciable for tax purposes. Cars are a big one for businesses, computer hardware, but not software; if you’re in construction or a builder it could be something like a generator,” he says.

Hayes also says there is an opportunity to claim bundled assets under the concession. “You might have three different assets integral to the same function, then arguably you can bundle those to get them over $1000.”

For example, buying tables, chairs and a sofa for a conference room, which cost more than $1000 in total, could be claimed.

Hayes also says that businesses are not required to use the asset primarily for business purposes.

“What the legislation says is that the asset must be primarily used in the business, but it must be used more than 50% in the business – not pro rata. If you bought a car, and say, used 20% of its usage for private purposes, you are still entitled to do that.”

Here are three worked examples provided by the Government in last night’s budget papers:

1/ Maria runs a retail clothing store and meets the definition of a small business entity. On 7 June 2009 she buys and installs six new mirrors for her fitting rooms.  The mirrors cost $200 each and are substantially identical, so the cost of every mirror can be amalgamated for the purposes of meeting the $1000 threshold.  Maria’s total investment is $1200 and she will be eligible to claim a $600 bonus deduction (being 50% of $1200) in her 2008-09 income tax return.

2/ Ben operates a courier service.  He also meets the definition of a small business entity.  He orders and takes delivery of a new, more fuel-efficient delivery van in June 2009 at a cost of $30,000.  Ben will be eligible to claim a bonus tax deduction of $15,000 in his 2008-09 tax return.

3/ The Sunshine Bakery is a small business.  On 12 October 2009, the company purchases and installs a new oven at a cost of $5000.  It will be eligible for a bonus deduction of $2500, which it can claim in its 2009-10 tax return.

See also Tax Matters, by Greg Hayes: I bought a computer in March; can I get the 50% rebate?

More budget 2009 coverage:

• Budget 2009: Small business tax break boosted from 30% to 50%
• Budget 2009: Exporters get extra funding
• Budget 2009: Do Not Call register expanded
• Budget 2009: $22 billion for infrastructure in budget
• Budget 2009: First home owner grant extended for three months
• Budget 2009: High and middle-income earners hit by changes to private health insurance, super
• Budget 2009: Innovation spending boost, but new R&D tax breaks delayed
• Budget 2009: Key budget measures at a glance
• Budget 2009: Holiday shack attack
• Budget 2009: Funds for textile, clothing and footwear sector