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30 per cent Investment Allowance.

P. W. writes:

I OWN a small business and recently bought a forklift, and I plan to purchase a car this month. The car will replace another vehicle used in my business.

I know the Government has introduced a 30 per cent investment allowance, but how does it apply to me, and does it make a difference that my vehicle is only partly for business use?

Mark says:

THE Government is allowing a one-off tax deduction of 30 per cent for assets acquired, for the principal purpose of carrying on a business, between December 13, 2008 and June 30, 2009.

To be eligible, the asset must be installed and ready for use prior to June30, 2010.

The allowance reduces to 10 per cent if the asset is ready for use between July 1, 2010 and December. 2010.

All businesses are eligible. Small businesses (those with an annual turnover up to $2 million) have an asset value threshold (minimum cost) of $1000; for all other businesses, the threshold is $10,000.

There are some exclusions, but it applies to most depreciable items.

The draft legislation does not exclude assets that are used only partly for business.

Provided the asset is principally used for business (that is, more than 50 per cent of the time), you will have access to the full allowance there is no apportionment.

The other great thing about this allowance is that it doesn’t affect your cost base for depreciation purposes.

For example, if you purchase an asset for $50,000 (net of (1ST), you will receive a tax deduction for $15,000 (30 per cent of the asset’s cost) and you will still be able to depreciate the asset using a cost base of $50,000. So it’s a double benefit.

As long as the forklift and the car are purchased before June 30, 2009, are new and are installed and ready for use before June 30, 2010, you will be able to claim 30 per cent of their cost (net of GST) as a deduction in your business tax return.

The luxury-car limit still applies for the vehicle, so although you could spend more than that limit, the 30 per cent allowance is capped.

Page 106 March 22, 2009 THE SUNDAY TELEGRAPH www.sundaytelegraph.com.au