I was excited about the Small Business and General Business Tax Break when it was at 30% so I’m thrilled it’s been increased and extended until the end of the year.
Small businesses will now be able to claim a bonus tax deduction of 50 per cent – up from the previous 30 per cent - of the cost of eligible assets acquired between 13 December 2008 and 31 December 2009, and installed by 31 December 2010.
The increased Tax Break provides small businesses with an even greater incentive to invest in new capital items, such as computer hardware and business vehicles, and to make capital improvements to existing machinery and equipment.
To qualify for the expanded 50 per cent rate you need to meet the definition of a small business entity. Generally this means that the taxpayer is carrying on a business and has an annual turnover of $2 million or less.
Small businesses only need to invest a minimum of $1,000 per asset (exclusive of GST) in order to qualify for the Tax Break. Under enhancements to the Tax Break announced in March 2009, they can also amalgamate their expenditure on batches and sets of assets in order to meet this threshold.
What’s so great about all this (aside from the obvious immediate deduction) is the way the bonus is administered. Surprisingly, the bonus deduction provided by the Tax Break is on top of the usual capital allowance deduction claimable for the asset as part of the taxpayer’s income tax return. The Tax Break has no impact on deductions for an asset’s decline in value claimed under Division 40. This permits a taxpayer to depreciate more than 100% of the value of an asset.
Examples:
The treasury has provided the following examples. Keep in mind that these are indicative only and you should consult your tax advisor about your personal situation before relying on any general information.
Maria runs a retail clothing store and meets the definition of a small business entity. On 7 June 2009 she purchases and installs six new mirrors for her fitting rooms. The mirrors cost $200 each and are substantially identical, so the cost of each mirror can be amalgamated for the purposes of meeting the $1,000 threshold. Maria’s total investment is $1,200 and she will be eligible to claim a $600 bonus deduction (being 50 per cent of $1,200) in her 2008?09 income tax return.
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.
The Sunshine Bakery is a small business. On 12 October 2009, the company purchases and installs a new oven at a cost of $5,000. It will be eligible for a bonus deduction of $2,500 which it can claims in its 2009?10 tax return.
Article by Christie Lewis
Christie is Practice Manager at Alan Lewis Accountants . Besides accounting, her passion is for all things small business (and blogging, of course). You can contact Christie directly at christie@lewistaxation.com.au.
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