Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
Tax Laws Amendment (Small Business and General Business Tax Break) Bill
2009
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be moved on behalf of the Government
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Small Business and General Business Tax Break - amendments 5
Glossary
The following abbreviations and acronyms are used throughout this
supplementary explanatory memorandum.
|Abbreviation |Definition |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
|Tax Break |Small Business and General |
| |Business Tax Break |
General outline and financial impact
Small Business and General Business Tax Break
The amendments apply to the Tax Laws Amendment (Small Business and
General Business Tax Break) Bill 2009.
Date of effect: The amendments apply to assessments for the 2008-
09, 2009-10, 2010-11 and 2011-12 income years.
Proposal announced: Aspects of these amendments were announced as
part of the 2009-10 Budget on 12 May 2009.
Financial impact: The amendments increase the cost of the measure
by $141 million over four years.
|2008-09 |2009-10 |2010-11 |2011-12 |2012-13 |
|Nil |-$30m |-$63m |-$47m |-$2m |
Compliance cost impact: Low.
Chapter 1
Small Business and General Business Tax Break - amendments
Outline of chapter
1. These amendments implement the Government's recent expansion of the
Small Business and General Business Tax Break (Tax Break) and
resolve a number of technical issues in the Tax Laws Amendment
(Small Business and General Business Tax Break) Bill 2009.
2. All references to legislative provisions in this chapter are
references to the Income Tax Assessment Act 1997 (ITAA 1997) unless
otherwise stated. The amendments impact on the Tax Laws Amendment
(Small Business and General Business Tax Break) Bill 2009, which
inserts a new Division 41 into the ITAA 1997.
Detailed explanation of new law
Amendment 1
3. Where the cost of an asset is reduced under Division 40 due to the
involuntary disposal of an asset or the forgiveness of debt, it is
the unreduced cost that applies for the purposes of the Tax Break.
4. When working out if an asset would be eligible for deductions under
section 40-25, for the purpose of the Tax Break a taxpayer can
disregard any reduction in the cost/adjustable value of the asset
that has arisen due to a forgiven debt or involuntary disposal of
an asset. [Amendment 1]
Amendment 2
5. Section 41-15 determines the amount of the deduction that a
taxpayer is able to claim in relation to an eligible asset.
Working out the amount of a taxpayer's deduction involves
multiplying the applicable rate by the recognised new investment
amounts for the income year in relation to the asset. [Amendment
2]
Which rate applies?
Small business entities
6. If a taxpayer is a small business entity, then only the 50 per cent
rate is relevant.
7. A taxpayer is a small business entity for an income year, rather
than at a point in time. Section 328-110 provides that a taxpayer
is a small business entity for the current income year if they
carry on a business in that year and:
. they carried on a business during the previous income year
and their aggregated turnover for that year was less than
$2 million; and/or
. it is likely that their aggregated turnover is to be less
than $2 million for the current income year.
8. To qualify for the lower 'new investment threshold' ($1,000 rather
than $10,000), a taxpayer needs to be a small business entity for
the income year in which they undertake new investment in an
eligible asset, put that asset to use, or claim the Tax Break.
9. If a taxpayer is eligible for the lower threshold for an income
year, they will be able to deduct 50 per cent of their 'recognised
new investment amounts' in relation to an asset for that income
year.
1.
Ben operates a courier service. He orders and takes
delivery of a new, more fuel-efficient, delivery van on
25 June 2009 at a cost of $30,000.
The van is a tangible, depreciating asset for which a
deduction is available under section 40-25.
In 2007-08 Ben was carrying on a business and his aggregated
turnover was less than $2 million and it is likely to be
less than $2 million again in 2008-09.
Ben's investment in the van has an investment commitment
time of 25 June 2009 which is between 13 December 2008 and
31 December 2009.
Ben's first use time in relation to the van is also
25 June 2009 which is before the deadline of
31 December 2010.
This gives Ben a recognised new investment amount in
relation to the van of $30,000 for the 2008-09 income year.
Ben's new investment threshold is $1,000, which his
investment in the van clearly exceeds.
Ben has satisfied all of the eligibility criteria that apply
to him and can claim the Tax Break at the 50 per cent rate.
He can claim a bonus deduction of $15,000 in his 2008-09 tax
return.
Other taxpayers
10. If a taxpayer is not a small business, then there are two rates
which could apply: 30 per cent or 10 per cent.
Summary
11. Tables 1.1 and 1.2 summarise the new key dates relating to the
different rates at which the Tax Break could be claimed for
taxpayers using standard income years (subject to all other
conditions being met).
1. : Small business entities
|Installed by:|New investment by: |
| |31 December 2009 |
|30 June 2009 |50% in 2008-09 |
|30 June 2010 |50% in 2009-10 |
|31 December |50% in 2010-11 |
|2010 | |
2. : All other taxpayers
|Installed by:|New investment by: |
| |30 June 2009 |31 December 2009 |
|30 June 2009 |30% in 2008-09 | |
|30 June 2010 |30% in 2009-10 |10% in 2009-10 |
|31 December |10% in 2010-11 |10% in 2010-11 |
|2010 | | |
Which rate applies to batches and sets?
12. A taxpayer who is not a small business entity is eligible to claim
a 30 per cent bonus deduction if they incur expenditure on multiple
assets that form a batch of identical or substantially identical
assets or assets that are part of a set of assets, and this
expenditure meets the requirements for the 30 per cent bonus
deduction. [Amendment 2]
13. To be eligible for the Tax Break at the 30 per cent rate, an asset
that is part of a batch or set must (among other things) have an
'investment commitment time' between 13 December 2008 and
30 June 2009 and a first use time on or before 30 June 2010.
14. In addition, the sum of the recognised new investment amounts in
relation to the asset plus the recognised new investment amounts in
relation to other assets in the batch or set (that also have an
investment commitment time between 13 December 2008 and 30 June
2009 and a first use time on or before 30 June 2010) must meet the
relevant new investment threshold.
15. A taxpayer's investments in a batch or set of eligible assets can
also be rolled over into future income years.
1.
Otto operates a commercial laundry that is not a small
business. On 1 May 2009, he purchases eight dryers and
installs them in two of his stores. Each dryer has a
recognised new investment amount of $1,000.
The assets are substantially identical. Therefore, Otto can
aggregate his expenditure on the dryers for the purpose of
meeting his new investment threshold.
This approach gives Otto an aggregated total recognised new
investment amount for 2008-09 of $8,000. However, Otto has
not satisfied the relevant new investment threshold of
$10,000 and cannot claim the Tax Break in his 2008-09 tax
return.
On 1 August 2009, Otto purchases another four dryers and
installs these in another store. These dryers are
substantially identical to those he purchased and installed
in 2008-09. Each dryer has a recognised new investment
amount of $1,000.
As Otto has not previously claimed the Tax Break for his
$8,000 of expenditure in 2008-09, he can carry the $8,000
forward into 2009-10.
Otto's aggregated total recognised new investment amount in
relation to the dryers for 2009-10 is $12,000 which
satisfies the relevant new investment threshold.
Otto can claim the Tax Break on this amount at the rate of
10 per cent in his 2009-10 tax return. He is not eligible
to claim the Tax Break at the rate of 30 per cent as the
total of the recognised new investment amounts in relation
to the dryers with an investment commitment time between
13 December 2008 and 30 June 2009 and a first use time on or
before 30 June 2010 did not satisfy the relevant new
investment threshold.
Amendments 3 and 4
16. A taxpayer that chooses to self-construct an eligible asset may
also qualify for the Tax Break. The taxpayer has started to
construct an eligible asset when they first incur expenditure in
respect of the construction of the asset or the modifications to an
existing asset. [Amendments 3 and 4]
17. This approach ensures that the test for self-constructed assets is
broadly analogous to the case where a taxpayer enters into a
binding contract, while providing taxpayers with the certainty of
an objective and verifiable test.
1.
Greenfield Power is a power supply company that builds its
own transmission lines. During mid 2008, the company
started to contemplate building a number of new transmission
lines. Over the remainder of 2008, preliminary design
planning and work was undertaken in anticipation of the
project going ahead.
On 15 January 2009, the company's directors sign off a
decision to proceed with construction of the lines. While
the company does not start to physically construct the
transmission lines at this point, it places an order for
some of the materials it will need. Upon placing the order
for the materials, the company is liable to pay a deposit
and, therefore, incurs expenditure in relation to the
materials.
On 10 February 2009 the relevant division of the company
starts to finalise the specification of the lines and places
further orders for materials.
The investment commitment time for each of the transmission
lines is 15 January 2009 as this is when the company first
incurred expenditure in respect of the construction of the
assets.
2.
Donaldson's Dairy manufactures a range of milk and cheese
products. In early 2009 the company starts to formulate
plans to renovate one of its manufacturing plants. The
project includes modifications to an existing tank and the
construction of a new conveyer belt.
On 30 March 2009, the company engages an electrical firm to
undertake the modifications to the tank at a cost of
$15,000, rather than construct the modifications itself.
Also on 30 March 2009, the company starts to order some of
the materials it will need to construct the new conveyor
belt and incurs expenditure in relation to the materials.
On 20 April 2009, the company engages two contractors who
will undertake the work under the direction of the company's
chief engineer.
The contractors do not physically commence work on the
conveyor belt straight away. They spend a number of weeks
undertaking further preparatory work and checking the
company's exact specifications for the asset to be
constructed.
The modifications to the tank are completed on 30 September
2009. Construction is completed and the conveyor belt
installed ready for use on 10 October 2009 at a total cost
of $50,000.
The company's investment commitment time in relation to the
tank is 30 March 2009 as this is when it entered into a
contract in relation to modifications.
The investment commitment time in relation to the conveyor
belt is also 30 March 2009 as this is when the company first
incurred expenditure in respect of the construction of the
asset.
If the company had not ordered materials until the
contractors were hired, then 20 April 2009 would be the
investment commitment time for the conveyor belt as that is
when the company would have first incurred expenditure in
respect of the construction of the conveyor belt.
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