1. Investment allowance

The government announced as part of its $42 billion stimulus package that the temporary investment allowance would be expanded.
The investment allowance will now provide businesses a 30 per cent tax deduction for new assets acquired and new expenditure on existing assets from 13 December 2008 to 30 June 2009. From 30 June 2009 to 31 December 2009 the investment allowance deduction will be 10 per cent of the cost of the asset or addition.

A minimum expenditure threshold of $1,000 will apply for small business taxpayers (businesses with a turnover of less than $2 million) with all other businesses requiring a minimum cost of $10,000.
Assets that will apply for the allowance are limited to plant and equipment (not land, trading stock or building works). A new car would also qualify as plant and equipment; however, an adjustment for any private use is expected to be required.

This short term stimulus measure requires that eligible contracts entered into by 30 June 2009 are installed ready for use by 30 June 2010 and eligible contracts entered into before 31 December 2009 are installed and ready for use by 31 December 2010.

For example: If you purchase and install a piece of machinery in March 2009 for $50,000 the business will receive an investment allowance deduction of $15,000 in its 2009 income tax return.
If the machinery is purchased in September 2009 for $50,000 the investment allowance deduction will be $5,000 in the 2010 income tax return.

2. Pay-as-you-go (“PAYG”) tax instalment relief

As a once off measure, a 20 per cent cut to the December 2008 quarter’s PAYG tax instalment has been granted to small businesses with aggregated turnover of $2 million a year or less.
The reduction is also available to individuals who are required to make PAYG instalments as a result of receiving income from a partnership or trust that is carrying on a business with a turnover of less than $2 million. The ATO will provide written notification to eligible businesses and individuals in February 2009.

The 20 per cent reduction applies to the instalment amount shown on the BAS sent by the ATO in December 2008 for the quarter or month ended 31 December 2008. Payment will be due on or before 28 February 2009; however, there is an extension to 2 March as February 28 falls on a weekend.

The ATO has instructed that you should not show any adjustment on your BAS statement due to the 20 per cent reduction, but rather you should only pay the reduced amount. As such you should apply the reduction as follows:

Step 1: Complete your BAS statement as you normally would and include the full PAYG Instalment amount provided by the ATO at label T7.

For example: If your net GST was $1,000 payable and you have a PAYG instalment of $5,000 the total amount payable will be $6,000 and this amount should be recorded at label 8B.

Step 2: Calculate the amount due to you as a result of the 20 per cent PAYG instalment reduction.

For example: The amount of the PAYG instalment at T7 is $5,000 the amount due to you as a result of the 20 per cent reduction will be $1,000 ($5,000 X 20%) .

Step 3: Calculate the amount to pay to the ATO.

The amount you are due to pay the ATO is the total amount payable per the completed BAS less the value of the 20 per cent reduction calculated in step 2.

Therefore, continuing the example the amount payable to the ATO will be $5,000 ($6,000 less $1,000).

Please note that the reduction is only applicable to PAYG tax instalments (not GST or PAYG withholding) and is not a reduction in your overall tax liability.

As a result, if your income has not reduced during the 2009 financial year you are likely to have a larger tax liability when your 2009 income tax return is assessed.

Andrew Craig, Adelaide