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Investment Allowance- Changes equal even bigger boost for your business

The “sleeper” in the Federal Government Stimulus Package is undoubtedly the “Investment Allowance”. The Government announced a few changes to this package last month which make it even more attractive for business to purchase new assets. By taking advantage of this package prior to 30 June, your business will be able to claim the deduction via its 2009 tax return.

The scheme previously offered a 30% tax reduction, however it has been boosted to a massive 50% tax break. This means you can buy a $60,000 car/machine and claim $30,000 (50%) when you lodge your tax return.

Your business still gets to claim the GST (10%) on the item, depreciation, and interest on any loan taken out to acquire the new asset.

Given the size of the allowance (50%) it makes it very difficult to ignore. It is certainly worth reviewing every asset that your business has and determining whether it is worth replacing at (effectively) a substantially ‘discounted’ price. Similarly, if you had been contemplating an asset purchase in the future it might be worth bringing the purchase forward to before 30 June 2009 to benefit this financial year. A lot of suppliers of cars and machinery are running out of financial year specials as a further enticement.

There’s only 4 weeks left in the financials year so business owners should seriously consider giving 6-Point a call today to arrange finance pre-approval.

Key points about the Investment Allowance

Eligible assets

  • the allowance can be claimed on the purchase of new assets only

  • the allowance applies to tangible assets used only in Australia in carrying on a business for which a depreciation deduction is available

  • this includes motor vehicles, buses, trucks, plant and equipment (doesn’t include capital works such as land and buildings, trading stock and intangible assets and rights)

  • there is no limit on the number of assets eligible for the allowance

How much

  • If your business turnover in 2007/8 was less than $2m, the allowance relates to individual assets of $1,000 or more. Businesses can claim a deduction worth 50% of the asset purchase/s between 13 December 2008 and 31 December 2009

  • If your business turnover in 2007/8 was greater than $2m, the allowance relates to individual assets of $10,000 or more. Businesses can claim a deduction worth 30% of the asset purchase/s between 13 December 2008 and 30 June 2009, then a 10% deduction on assets purchased before 31 December 2009

  • If the asset is used partly for private or other non-taxable purposes, only that segment for taxable purposes will count towards the threshold.


How to claim

  • the allowance can be claimed through the income tax return of the business for the financial year the cost is incurred

Find out more: click here

Here’s how you might combine the Investment Allowance and an equipment loan to reduce your tax and improve business productivity...

Whilst many businesses will be keen to take advantage of the 50% Investment Allowance, few businesses will be in a position to pay cash for the new asset, especially considering that the transaction must occur pre-31 December. Here’s a simple illustration of how an Equipment Loan can be used to purchase the eligible (new) assets:

The business - “Bill’s Widget Shop”

  • The asset - a new widget making machine (could also be a vehicle and / or most other assets)

  • Asset cost - $55,000 (inc.GST)

  • Loan product - Chattel mortgage

  • Loan amount - $55,000 (no deposit required, subject to credit approval)

  • Loan term - 5 years with 25% balloon payment at end of term

  • Loan payments - $920 per month

The benefits to Bill’s Widget Shop include:

  • Increased sales / productivity from the new asset

  • Claim $5,000 ITC on next BAS return (representing 10% GST component)

  • Claim an additional $27,500 Investment Allowance on 2008/9 Tax Return

  • Claim depreciation and interest on next Tax Return

  • No initial capital outlay / deposit

  • No property security

  • Fixed monthly outlay / loan payment of only $920

While it provides taxpayers with a narrow investment window for obtaining the deduction, the allowance will provide taxpayers with an additional incentive for increasing expenditure on revenue generating assets. It is hoped that the incentive will encourage spending thus stimulating the economy.

The content of this article is intended to provide a general guide to the subject matter. This content does not represent tax advice. Specialist advice should be sought about your specific circumstances

Please contact 6-Point Finance on (07) 3252 2951 to discuss further.