On 12 December 2008 the Rudd Government announced details of a '10% temporary investment allowance' aimed towards boosting the economy. From 12:01am 13 December 2008 until 30 June 2009 businesses will be able to claim an additional 10% tax deduction based on the first element cost base (according to subdivision 40-C of the ITAA 1997) of all new tangible depreciating assets over the value of $10,000.
New assets must be ordered or acquired before 30 June 2009 and must be installed ready for use by 30 June 2010. The term 'new asset' includes both purchased assets and assets constructed by the taxpayer (construction must commence before 30 June 2009). Also note that where an asset is used for private use, only the portion of the asset used for carrying on a business can be counted towards the $10,000 minimum expenditure requirement. For example, a $15,000 asset used 50% for private purposes will not be eligible for an additional deduction ($15,000*50%=$7,500 <$10,000).
See the example below for how these new measures will operate with Division 40 deductions.
| Example | |
| Date of acquisition | 1 Jan 2009 |
| (Asset acquired after 13 December 2008) | |
| First element of cost base | $15,000 |
| Second element of cost base | $3,000 |
| Business use percentage | 100% |
| Useful life | 10 years |
| Asset satisfies $10,000 minimum expenditure threshold | |
| Additional tax deduction available in first year | =($15,000+$3,000)*10% =$18,000*10% =$1,800 |
| Division 40 deduction | =($18,000/10years)*181/365 =$893 |
| Closing written down value | =$18,000-$893 =$17,107 |
| Total tax deduction in first year | =$1,800+$893 =$2,693 |
Note that the additional deduction does not affect the written down value (WDV) of the asset.
You should also be aware of the restrictions on the additional 10% deduction. Notably land and trading stock are not defined as depreciating assets (under Division 40) and hence will not qualify for the allowance. Expenditure on capital works (e.g. building depreciation) will not qualify for the allowance as a deduction is claimed for capital works under Division 43. Generally an allowance will be available when a taxpayer can claim a Division 40 deduction and not available when the expenditure is claimable under other Subdivisions.
This measure is in addition to the Government's $10.4 billion Economic Security Package and allowances will be available to taxpayers in the first year in which a Division 40 deduction is first claimed for the asset (within the relevant timeframe).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
