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ATO Releases Details Of Australian Business Tax Break

by Mary Swire, Tax-News.com, Hong Kong

20 May 2009

Further details of a tax break for small businesses introduced in this month's Budget have been unveiled by the Australian Taxation Office (ATO).

Following the release of the Budget on May 12, the government announced an investment tax break for business. The Bill has been passed by Parliament and is currently awaiting Royal Assent.

The tax break, in the form of an investment allowance, will provide:

Small business entities (turnover of less than AUD2m (USD1.5m) a year):

  • An additional tax deduction of 50% of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between December 13, 2008, and December 31, 2009, and first uses the asset, or installs it ready for use, or (in the case of new investment in an existing asset) brings the asset to its modified or improved state on or before December 31, 2010.

Other business entities (turnover of AUD2m (USD1.5m) or more a year):

  • An additional tax deduction of 30% of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between December 13, 2008, and June 30, 2009, and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state on or before June 30, 2010.
  • An additional tax deduction of 10% of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between December 13, 2008, and June 30, 2009, and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state between July 1, 2010, and December 31, 2010.
  • An additional tax deduction of 10% of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between July 1, 2009, and December 31, 2009, and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state on or before December 31, 2010.

Generally, a business ‘commits’ to investing when: it enters into a contract under which the asset will be held or improved; it starts to construct the asset or improvement; or starts to hold the asset in some other way.

Small businesses entities will be able to claim the 50% deduction for investments in eligible assets of AUD1,000 (USD759.364) or more.

For other businesses, a minimum expenditure threshold of AUD10,000 (USD759.364) will apply to be eligible to claim the 30% or 10% deduction.

The cost of items forming part of a set and the cost of identical or substantially identical assets may be added together for the purposes of meeting the thresholds.

All assets must be used principally in Australia for the principal purpose of carrying on a business and meet certain eligibility criteria.

Provided all of the eligibility criteria are satisfied for the income year, the tax break can be claimed as a tax deduction in the income tax return for the income year in which the asset is first used or installed ready for use.

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