10% Investment Allowance – Treasury Clarification Provided - 2nd Feb 2009 

Please note: This is a summary of Advice received by Base Financial Group and is intended for general information purposes only, and should not be construed as professional advice. Readers should seek professional advice from their accountants.

The Australian Governments investment allowance is one of many policies offered to try and stimulate the economy. The nature of the urgency of such stimulants means that these have been offered prior to all details being confirmed or settled. Base Financial Group is able to offer the following information thanks to industry associations.


Eligibility:

1. Purchases of new, tangible capital equipment

2. Minimum cost price (excl GST) of $10,000

3. Allowance is provided as an additional tax deduction. Clients claim 110% of the cost price with an outright 10% deduction available when asset is ready for use, and the remaining 100% over the effective life of the asset.

4. Asset must be held under a contract or constructed between 13^th December and 30^th June 2009.

5. Asset must be installed and ready for use by 30^th June 2010.

Hire Purchase and Chattel Mortgage Contracts

Clients claim the investment allowance as long as they are not prohibited from claiming capital allowances.

Finance Lease Contracts

Treasury are to clarify whether financiers (lessors), will be able to transfer the investment allowance to clients (lessees) in the event of finance lease transactions as was the case with the old investment allowance scheme.

In the event that lessors are unable to transfer the investment allowance to lessees, it is anticipated the clients should received the benefit of funders being able to claim increased depreciation in the form of lower rates.

Further clarification is required.

Timeframes in relation to Legislation

Draft legislation should be available in mid to late January for consultation with industry.

Treasury anticipates legislation will be introduced into Parliament in February 2009.

Investment Allowance Details

Clients can claim 110% of the asset cost over the life of the asset which is split up into a 10% outright deduction at the time the asset is installed ready for use and then 100% over the life. This is available to the taxpayer who is entitled to capital allowance deductions under Division 40 of the Income Tax Assessment Act.

Clawbacks for Early Disposal

No clawback proposal has yet been put forward. Under the old investment allowance rules however, the client had to hold the asset for a minimum of 12 months.

Further clarification is required.

Timeframes in relation to Equipment Purchases

Order and delivery should have occurred after the 13^th of December 2008 in order for the client to be entitled to the investment allowance however Treasury noted that this cut-off date may have the result of causing business to cancel orders which is not an intended consequence. As such, they are reviewing this in an effort to ensure no unintended consequences of cancelled orders.

Further clarification is required.

Equipment Use in Australia

No real clarity on assets that are located overseas but generate income in Australia.

Further clarification is required.

Minimum Cost Price and Small, Multiple Asset Purchases

Minimum cost price to be eligible for the investment allowance is $10,000 exclusive of GST. The $10,000 cost threshold is based on the definition of ‘cost’ for depreciation purposes.

The $10,000 is based on a per asset basis. Eg if a client purchases 10 computers for $3,000 each although the total cost is above $10,000, the threshold is applied to each computer therefore the purchase would be ineligible for the investment allowance.

Computer Software & Hardware

Computer Software is ineligible since it is considered an intangible asset. Computer Hardware is eligible for the investment allowance.

Luxury Cars

The investment allowance will be capped to the luxury car limit.

Sale and Leasebacks

Treasury advised that if a new piece of equipment is the subject of a sale and leaseback transaction, the investment allowance would be available. There is no definition of ‘new’ however.

AELA have requested clarification on this matter, particularly in relation to the scenario where an asset can be imported and then used for a short period of time for testing purposes before being subject to a sale and leaseback. They noted that under the previous investment allowance scheme, if the asset was acquired within 6 months from the time construction was completed and imported then the asset was considered effectively new.

Further clarification is required.

Private and Business Usage & Novated Leases

Treasury are still considering whether there will be apportionment of the investment allowance for business vs private usage.

Further clarification is required.

Record Keeping

Treasury suggested there would not be onerous record keeping requirements given the temporary nature of the proposed investment allowance.

Demonstrator Vehicles

Treasury is to provide clarification on whether demonstrator vehicles will be acceptable as new vehicles for the purposes of the investment allowance.

Further clarification is required.