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12 Feb 09 ATO clarification: Small Business and General Business Tax Break

Following Treasury clarification in last week's edition of TAXVINE - see 2009 TAXVINE No 4 (6 February 2009) - the ATO has now issued its own clarification about certain aspects of the Government's Small Business and General Business Tax Break:

"Based on some queries we have received, we thought it might be worth clarifying that a small business taxpayer who chooses to deduct amounts for depreciating assets under Subdivision 328 D ITAA97 will not be ineligible for the investment allowance merely because they make such a choice.

Given that the media release Small Business and General Business Tax Break emphasised the benefits to small business, we are sure you will find no surprise in this. However, it has been pointed out to us that a small business taxpayer who allocates the asset in question to a small business pool would arguably not be “entitled to the capital allowance deduction under Division 40 of ITAA97 in respect of that asset” (receiving instead a deduction for the pool under Division 328).

For clarification, it is the fact that the asset is one for which a deduction is available under the core provisions of Division 40 that matters - regardless of whether the taxpayer ‘opts out’ of Division 40 for capital allowance purposes - that governs eligibility.

We have also received queries about whether leased assets are covered. Provided the asset being leased is a new, tangible depreciating asset for which a deduction is available under the core provisions of Division 40 of the Income Tax Assessment Act 1997 (ITAA97), then it is expected that the asset should be eligible for the investment allowance (subject to the other criteria being met). Division 40 of ITAA97 provides a framework for determining who in a leasing arrangement is able to claim depreciation deductions in respect of the asset and this will guide who is entitled to claim the bonus deduction in a leasing situation.

Finally, we understand that some people may have interpreted the 30% rate announced as part of the Small Business and General Business Tax Break as being additional to the 10% temporary investment allowance announced by the Government on 12 December 2008. This is not the case. The maximum rate of additional deduction is 30% for an asset acquired after 12 December 2008 until 30 June 2009 and installed ready for use by 30 June 2010.

Further detail will appear in the draft legislation Treasury will be releasing for public consultation in the next few weeks."

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