Small Businesses Get Their Share Of The Stimulus Package – Investment Allowance

The Government intends that small business should also benefit from the Economic Stimulus Plan with a Tax Break.

If you are in business this means the Investment Allowance is for YOU. The Government intends that small business should also benefit from the Economic Stimulus Plan with a Tax Break.

How can the Investment Allowance benefit you? If you purchase new equipment costing $1000 or more between 13th December 2008 and 31st December in 2009 and install it before the end of 2010 then you are entitled to 50% of the total value of an asset as a deduction, plus you can also depreciate the asset at the normal rates.

In effect the government is giving you your cake and you can eat it too! Magic!!

Here’s an example:

Elvis Pelvis owns a small business selling musical instruments. He requires a vehicle which he wishes to use to carry and deliver pianos, guitars and other musical instruments. For advertising purposes Elvis is going to add a big golden guitar on top of the vehicle. The new vehicle costs $50,000 including the cost of the construction of this golden guitar. He can now claim 50% of the purchase price of the vehicle in his tax return in the year that he has purchased the vehicle and has it ready to use.

This has an immediate result of reducing his income tax. Receiving the investment allowance does not stop Elvis from receiving the full amount of depreciation. He gets both.

Elvis also plans to use the vehicle for private purposes but this too does not stop him receiving the full 50% investment allowance.

The investment allowance eligibility criteria:

  • The asset must be intended to be used for business in Australia.
  • It must be a tangible asset. It can’t be software, licenses, patents or websites. It does not include land, buildings or trading stock.
  • The asset must be new.
  • For a small business the asset must be worth more than $1,000. For a business which is larger and does not meet the small business criteria the asset must be worth more than $10,000.
  • The contract to buy or construct the asset or make additional investment in the asset must be entered into between 13 December 2008 and 31 December 2009 and installed before 31 December 2010.
  • The asset must be “held” meaning available to be used. Hire purchase assets are eligible but novated lease assets are not eligible unless they are luxury cars which can be claimed only up to the cap on the luxury cars.
  • Leased assets depend on ownership rights. Usually they rest with the leasing company. If you are about to lease equipment or a vehicle point out to the salesman that the terms should be better for you as the leasing company is going to get the investment allowance.
  • You are not locked into only one asset you can do it again with multiple assets.
  • If you are employed and also have a small business on the side and you use this small business to purchase your equipment then the turnover of your small business must exceed $20,000 in order to be entitled to claim the costs of the investment allowance against other income.
  • If it is a motor vehicle you are claiming for make sure you do over 5000 business kms or you won’t get your investment allowance.
  • The claim for the investment allowance is available in the year that the asset is installed and ready to be used.

People with rental properties may be disappointed because rental is not considered a business but rather a passive activity so landlords with only a few rental properties would not be eligible for the investment allowance.

The gift of the Investment Allowance is a really amazing opportunity for small business to reduce their tax burden during the economic downturn and invest in new assets for future growth. It is also important to be aware that the ATO will be alert to any schemes to claim the investment allowance where there is not a genuine intention to use the asset for business purposes or where the asset is purchased and quickly resold with the intention merely of making a claim to reduce tax.

Even a new business that has never operated before is entitled to claim the Investment Allowance if it has a genuine intention to operate and use the asset in a business.

If you have been dreaming of equipment that could help your business don’t wait, make haste and buy now. You’ve got the perfect excuse for shopping- you’re doing it for Australia and you will get a tax deduction for it!

For more about the Australian Governments investment allowance, contact Easy Tax today.


Take advantage of our small business accounting services during which we will help you to refine your needs and consider an accounting and tax planning solution for your business going forward… make an online enquiry today or call us on +61 2 9419 5322 and let us help you solve your accounting or tax problems.

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