Please find below the answers to some of the questions that our clients have raised about the proposed small business and general business tax breaks announced in the Treasurer's press release dated 3 February by the Rudd Government that we have had clarified with Treasury.

Question: Does the Small Business and General Business Tax Break add to the 10 per cent deduction from the Temporary Investment Allowance (TIA) that was announced on 12 December 2008?
Answer: The Small Business and General Business Tax Break subsumes the TIA that was previously announced. This means that the maximum deduction an entity can get is a 30 per cent and 10 per cent bonus deduction for assets acquired before 30 June and 31 December respectively.

Question: How much do I need to spend to get the bonus deduction?
Answer: Small business entities must spend $1,000 and other entities must spend at least $10,000 per eligible asset.

Question: Can I get the bonus deductions in relation to assets that are purchased second hand?
Answer: The bonus deduction will be available for new, tangible depreciating assets for which a deduction is available under Division 40 or new expenditure on existing assets. This means that the bonus deduction will not be available for second hand assets.

Question: Does the bonus tax deduction apply to businesses other than small business taxpayers?
Answer: Yes the 30 per cent and the 10 per cent bonus deductions apply to both small business entities and other entities.

Question: What entities will qualify as a small business?
Answer: An entity that carries on a business with a turnover of $2M or less.

Question: Does the entity need to be carrying a business to get the bonus deduction or will an entity that is deriving income from passive activities (e.g. holding rental properties), be eligible for the deduction .
Answer: An entity that is deriving income from passive activities (e.g. holding rental properties) would generally be eligible for the deduction. The bonus deduction will be closely aligned with the uniform capital allowances regime in Division 40 of the Income Tax Assessment Act 1997. This means if the entity is able to claim a deduction for a decline in value of an asset under Division 40 (i.e. depreciation) they will be eligible to claim the bonus deduction (assuming other eligibility conditions are met).

Question: At what rate will I be able to claim the bonus deduction? Is it determined on when I acquire the asset or when I install the asset?
Answer: The rate of the bonus deduction is determined based on when you acquire the asset. The applicable rates are as follows: 
-Assets acquired after 12 December and before 1 July 2009 will get a 30 per cent bonus deduction where installed before 1 July 2010; and
-Assets acquired between 1 July and 31 December 2009 will get a 10 per cent bonus deduction where installed before 31 December 2010. 

Question: If I am eligible to claim the deduction when will I be able to claim the deduction? Is it during the year of purchase, or during the year of installation?
Answer: Eligible entities will be able to claim the bonus deduction in the income year that the asset was installed ready for use. Furthermore, the bonus deduction will only be available where the asset is installed ready for use prior to 30 June 2010 or 31 December 2010.

For example, if a business acquired an asset on 30 June 2009 but did not install it until 1 July 2009 the business will claim 30 per cent of the asset cost as a deduction in preparing its income tax return for the income year ending 30 June 2010.

Question: If I acquire an asset part way through the year am I required to prorate the bonus deduction for the number of day that the asset was held?
Answer: No, the bonus deduction is not required to be prorated if you acquire the asset part way through the year. This means you will be entitled to claim 30 per cent or 10 per cent of the asset's cost without an adjustment for the date acquired.

Question: What amount is the bonus deduction based on?
Answer: The bonus deduction is based on the first and second elements of the cost of acquiring the asset. This will ordinarily be the actual acquisition cost and other incidental costs such as freight.

Question: Will the 10 per cent and/or 30 per cent bonus deduction reduced the asset's adjustable tax value?
Answer: The bonus deduction will not affect the asset's adjustable tax value. This means that eligible businesses will be able to claim deduction of up to 130 per cent of the value of the asset over its effective life.

Question: When calculating the asset's cost do I use the cost inclusive of GST?
Answer: Entities must use the cost excluding any GST component eligible for an input tax credit.

Question: If an entity is in an overall tax loss position will the deduction be provided as a refundable credit/grant?
Answer: No, the bonus deduction will not give rise to a refundable amount where the entity is in a loss position. However, it will give rise to a greater loss that may be used in future years (subject to the loss recoupment rules).

For further information on the Small Business and General Business tax break please contact Simon Tucker or Stephen O’Flynn on (03) 9614 4444.