Bills Digest no. 129 2008–09
Tax Laws Amendment (Small Business and General Business
Tax Break) Bill 2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date
introduced: 19 March
2009
House: House of Representatives
Portfolio: Treasury
Commencement: The
day of Royal Assent
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Bill amends the Income Tax Assessment Act 1997 (the
ITAA 1997) to provide an additional deduction, by way of a
temporary investment allowance, for certain business investments
for new, tangible depreciating assets and new expenditure on
existing assets.
Background
The Small Business and General Business Tax Break was announced
as part of the Nation Building and Jobs Plan on
3 February 2009.[1] It provides a temporary bonus income tax deduction
for new investment in tangible depreciating assets undertaken
between 13 December 2008 and 31 December 2009. This deduction
is in addition to the tax depreciation deductions that are able to
be claimed in relation to depreciating assets under existing
Subdivision 40 B of the ITAA 1997. The tax break expands and
extends the temporary investment allowance announced by the
Government on 12 December 2008.[2] For assets purchased or constructed between 13
December and 30 June 2009, the taxpayer may claim a bonus deduction
of 30 per cent of the cost of the eligible asset. For assets
purchased or constructed after 30 June 2009 but before 31 December
2009, the taxpayer may only claim a 10 per cent deduction, provided
the taxpayer must start to use the asset, or have it installed
ready for use by 31 December 2010.[3]
On 25 February 2009, the Treasurer
released an exposure draft of the Tax Laws Amendment (Small
Business and General Business Tax Break) Bill 2009 for public
comment.[4] Following
the receipt of public comments (which closed on 10 March 2009), the
Government introduced the current, formal Bill into Parliament on
19 March 2009. There does not appear to be any significant
difference between the exposure draft and the formal Bill.
In his Second Reading Speech for the Bill, the Treasurer told
the House that the Tax Break is one of a number of measures being
implemented by the Government to support domestic economic growth
and employment in the face of a deteriorating global economic
environment and contraction of the global economy. The Treasurer
said that the tax break will cost $3.8 billion. Small business
entities (being entities that have an annual turnover of no more
than $2 million) need to invest a minimum of $1,000 to qualify for
the tax break, but other businesses need to invest a minimum of
$10,000.
According to the Explanatory Memorandum to the Bill, the
temporary bonus tax deduction is estimated to have a total cost to
the Budget of $3.8 billion from 2009 10 to 2011 12:
|
2007-08
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
Nil
|
Nil
|
-$1,440m
|
-$1,800m
|
-$515m
|
Main
provisions
Item 4 of Schedule 1 inserts a
new Division 41 into the ITAA 1997 to
provide an additional deduction for certain new business
investments.
Proposed section 41-5 states that the object of
this Division is to provide a temporary business tax break for
Australian businesses using assets in Australia, with a view to
encouraging business investment and economic activity .
Proposed paragraphs 41-10(a),
(b), (c) and (d)
set out the four conditions for entitlement to a deduction for the
investment. These conditions are as follows.
The eligible asset must be a depreciating asset other than an
intangible asset (proposed paragraph
41-10(1)(a)).
The term depreciating asset is defined in subsection
995 1(1) (being the Dictionary section for the ITAA 1997) as having
the meaning given by section 40-30. Subsection 40-30(1) provides
that a depreciating asset is an asset that has a limited
effective life and can reasonably be expected to decline in value
over the time it is used, except:
- land; or
- an item of trading stock; or
- an intangible asset, unless it is mentioned in subsection
40-30(2).
Subsection 40 30(2) provides that the following intangible
assets are depreciating assets, if they are not trading stock:
- mining, quarrying or prospecting rights,
- mining, quarrying or prospecting information,
- items of intellectual property,
- in-house software,
- an indefeasible right to use a telecommunications cable system
( an IRU),
- spectrum licences,
- datacasting transmitter licences,
- telecommunications site access rights.
The term intellectual property , except so far as the
contrary intention appears, is defined in subsection 995(1) of the
ITAA 1997 as follows:
Intellectual property
: an item of intellectual property consists of the rights
(including equitable rights) that an entity has under a
Commonwealth law as:
- the patentee , licensee, of a patent; or
- the owner, or licensee, of a registered design; or
- the owner, or a licensee, of a copyright;
or of equivalent rights under a foreign
law.
Proposed paragraph 41-10(b) requires that in
order to be eligible to claim the additional deduction for new
business investment, the taxpayer must be able to claim a deduction
for that income year under section 40-25 in respect of that
depreciating asset. Section 40-25 of the ITAA 1997 sets out how, in
calculating assessable income, a taxpayer claims a deduction of
amounts for depreciating assets held at any time in the income
year.
Proposed paragraph 41-10(c) states that the
additional deduction can be claimed for the income year 2008 09,
2009 10, 2010 11 or 2011 12.
Proposed paragraph 41-10(1)(d) provides that
the total of the recognised new investment amounts for the income
year in relation to the asset equals or exceeds the new investment
threshold for the income year in relation to the asset.
The expressions recognised new investment amount and
new investment threshold are defined in proposed
subsection 41-20 and proposed subsection
41-35.
As explained in the Explanatory Memorandum for the Bill, for the
purposes of calculating a recognised new investment amount
, the amount needs to be included in an asset s cost. It only
includes capital expenditure and does not include amounts that can
be deducted under other provisions.[5] An asset s cost has two elements. The first
element of cost is calculated at the time the taxpayer starts to
hold the asset and is generally the amounts he has paid to hold the
asset at that time.[6] The second element consists of the amounts the taxpayer
has paid to bring the asset to its present condition and location
.[7]
Proposed paragraph 41-35(a) states that for a
small business entity during the relevant income year the new
investment threshold is $1,000. Otherwise the new investment
threshold is $10,000: proposed paragraph 41
35(b).
According to MYOB s Australian Small Business Survey, March
2009, only 30 per cent of businesses planned to invest in their
operations in the next six months.[8] This has led to calls for extending the one-off
tax break.[9]
The additional 30 per cent tax deduction in the first year in
which the tax deduction can be claimed (2009-10) will bring forward
business spending which has already been earmarked for investment.
Several accounting firms have commented that these investments are
not additional purchases brought on as a result of the tax
break.[10]
The tax break means that over the life of the asset businesses
can claim 130 per cent of the cost. However, an obstacle for small
and medium enterprises is the availability of capital to the
purchase asset. Of the small businesses surveyed, less than half
expected an increase in revenue over the next twelve months with 30
per cent of businesses expecting this increase to be between 6 and
10 per cent.[11]
Among the reported investments brought forward are the
construction of a retail mall, the purchase of passenger motor
vehicles,[12]
construction cranes and commercial vehicles, and the replacement of
existing near-depreciated assets.
The attraction for large businesses of the tax break is that
major capital spending for future years can be established under a
contract (or started to be constructed) before 30 June 2009 to be
eligible for the 30 per cent bonus tax deduction, or before 31
December 2009 for the 10 per cent bonus tax deduction.
For small businesses the one-off tax break is an incentive to
group purchases of composite assets, for example, computers,
printers and IT equipment which can be shown to improve
productivity in order to qualify for the bonus deduction. However,
in the current global downturn which has affected just under half
of the small businesses surveyed by MYOB[13] and with the continued decline in
trading, the bonus tax deduction may not be enough to encourage
these businesses to make additional purchases or to borrow to
invest.
While the additional tax deduction is geared particularly to
assist manufacturing which was in decline before the onset of the
global recession, having the depreciating asset in place before 30
June 2010 is proving to be difficult, particularly plant equipment
imported from overseas.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
2465.
Michael Priestley and Bernard Pulle
11 May 2009
Bills Digest Service
Parliamentary Library
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