50% Tax Break for Small Business Expenses

Mr Swan believes that “small businesses are the backbone of the Australian economy, employing around half of all private sector workers”.

So the Government has provided additional assistance by increasing the Small Business and General Business Tax Break to 50% for eligible assets ordered between December 2008 and December 2009.

The increased tax break provides small businesses with an even greater incentive to invest in new capital items, such as computer hardware and business vehicles, and to make capital improvements to existing machinery and equipment. A small business generally means that you are carrying on a business and you have annual turnover of $2 million or less.

Eligible assets for which the tax break is available are new tangible, depreciating assets for which a deduction is available under Subdivision 40‑B of the ITAA 1997 and new investment in existing eligible assets. Cars can qualify for the Tax Break, except where you use the cents per kilometre method to determine their car expense deductions.

Intangibles, such as software, and rights, for which a deduction is available under subsections 40‑30(2), (5) and (6) of the ITAA 1997, are not eligible for the Tax Break. Land and trading stock are excluded from the definition of depreciating assets, and will not qualify for the Tax Break.

So what’s the strategy?

If you need the type of equipment highlighted in the examples below, then get it before December 2009 and make sure it’s installed before December 2010.

Examples...

Maria runs a retail clothing store and meets the definition of a small business entity. On 7 June 2009 she purchases and installs six new mirrors for her fitting rooms. The mirrors cost $200 each and are substantially identical, so the cost of each mirror can be amalgamated for the purposes of meeting the $1,000 threshold. Maria’s total investment is $1,200 and she will be eligible to claim a $600 bonus deduction (being 50 per cent of $1,200) in her 2008‑09 income tax return.

Ben operates a courier service. He also meets the definition of a small business entity. He orders and takes delivery of a new, more fuel-efficient delivery van in June 2009 at a cost of $30,000. Ben will be eligible to claim a bonus tax deduction of $15,000 in his 2008-09 tax return.

The Sunshine Bakery is a small business. On 12 October 2009, the company purchases and installs a new oven at a cost of $5,000. It will be eligible for a bonus deduction of $2,500 which it can claims in its 2009‑10 tax return.

Any advice given is of a general nature only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situations and needs.