As part of their broader economic stimulus package, on 12 December 2008 the Federal Government announced an investment allowance giving business taxpayers an additional 10% capital allowance deduction for new tangible assets.

When does the allowance apply?

Where a taxpayer acquires an asset or starts to construct an asset under a contract entered into between 13 December 2008 and 30 June 2009, the allowance will apply. Assets must be installed ready for use by 30 June 2010.

What assets are eligible for the allowance?

Assets must satisfy a number of criteria in order to be eligible for the investment allowance:

  • the asset must be a tangible asset eligible for deduction pursuit to the capital allowances regime in Division 40 of the Income Tax Assessment Act 1997
  • the asset must be new, in the sense that the taxpayer started to hold the asset or the asset commenced to be constructed between 13 December 2008 and 30 June 2009. Depreciating assets held before 13 December 2008 will not be eligible for the allowance, however it appears that additional spending between the above dates on existing assets (ie improvements) will be eligible for the allowance
  • the asset must be used by the taxpayer in carrying on a business. That is individual taxpayers not carrying on a business but using assets such as cars or rental properties for the purpose of producing assessable income will not be eligible for the allowance
  • only assets costing more than $10,000 will be eligible for the allowance.

Which assets are excluded from the allowance?

The following assets will be ineligible for the allowance:

  • intangible assets such as intellectual property and rights
  • assets outside the scope of Division 40 such as trading stock and land and buildings
  • items costing less than the $10,000 threshold such as computers and other low costs assets.

Motor vehicles are not excluded from the allowance.

Additional requirements and features of the allowance

The allowance gives taxpayers a further 10% deduction to that which they are otherwise entitled in respect of eligible assets. For example, where an asset is acquired and installed ready for use on 28 June 2009, the taxpayer will be entitled to 3 days depreciation at ordinary rates plus 10% of cost for the 2009 income year.

The allowance will be claimed through the taxpayer's tax return for the relevant income year.

No draft legislation was released at the time of the announcement.

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. As with allowances used in earlier years to increase business spending, it is hoped that the incentive will encourage spending thus stimulating an otherwise lagging economy.

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.