The concession is provided in the form of an additional depreciation deduction.  Eligibility for the deduction is tied to the time of acquisition and the time that the depreciating asset is installed ready for use. Small business taxpayers will get an additional 50 per cent depreciation deduction if they acquire a new asset before 31 December 2009 and have it installed ready for us before 31 December 2010.  The amount of the additional depreciation deduction for other business taxpayers depends on when the asset is acquired and when it is installed.

The additional deduction will be claimable in the financial year in which the asset acquired first becomes installed ready for use, with the uniform capital allowance provision in the Income Tax Assessment Act 1997 to be amended to provide a mechanism for claims.

The one off tax deduction will be on top of the usual capital allowance deduction taxpayers are entitled to claim for an asset. Eligible assets are tangible assets used in carrying on a business in Australia for which a deduction is available under the existing uniform capital allowance provisions. The benefit will also be available for new expenditure on existing assets.

Assets acquired under lease are eligible for the bonus deduction. The bonus deduction will be available for taxpayers that are entitled to claim a depreciation deduction for leased assets under Subdivision 40B of the Income Tax Assessment Act 1936 (generally the finance company). The Explanatory Memorandum explains that it is a matter of commercial negotiation to determine how the additional deduction affects lease prices.

The bonus deduction will only apply to acquisition expenditure on new assets or new expenditure on existing assets. As such, the Explanatory Memorandum provides clarification on what is considered ‘new’ for the purposes of claiming the bonus deduction. An asset will be considered ‘new’ if it has never been used or installed ready for use by the taxpayer or another entity for any purpose (business or otherwise) prior to 12 December 2008. However, an asset will be considered ‘new’ if it has only been used for ‘reasonable testing and trialling’.

For primary producers, it is important to note that eligible assets do not include water facilities, horticultural plans, landcare operations or the cost of connecting utilities. Generally, a taxpayer must satisfy the above investment thresholds on a per asset basis; therefore, expenditure relating to different types of assets cannot be aggregated in order to meet the thresholds. However, expenditure on assets that are identical, are substantially identical, or form a set, may be aggregated for the purposes of meeting the relevant threshold. Items may be regarded as a set if they are dependent on each other, are marketed as a set, or are designed and intended to be used together.

In summary

• 50 per cent deduction to small businesses on assets acquired between 13 December and 31 December 2009 and installed before 31 December 2010.
• 30 per cent deduction to other businesses on assets acquired between 13 December 2008 and 30 June 2009 and installed before 31 June 2010.
• 10 per cent deduction to other businesses on assets acquired between 1 July 2009 and 31 December 2009 and installed before 31 December 2010.
• 10 per cent deduction to other businesses on assets acquired between 13 December 2008 and 30 June 2009 and installed between 1 July 2010 and 31 December 2010.
• Threshold of $1,000 on asset acquisitions for small business taxpayers.
• Threshold of $10,000 on asset acquisitions for all other business taxpayers.
  -    Available on top of the usual uniform capital allowances associated with an asset.
  -    Deductions available in the financial year in which the asset acquired is first installed ready for use.

The above summary is general in nature and is not advice.  These provisions are not final legislation at the time of post and its application dependent on the specific facts and circumstances.

Allan Mortel - Sydney
amortel@moorestephens.com.au