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Small business and general business tax break
Small business and general business tax break
Businesses can claim an additional tax deduction when they buy certain assets, and when they spend money to improve existing assets, for a limited time. It's called the Small Business and General Business Tax Break - 'business tax break' for short.
The Australian Government announced the tax break as an 'investment allowance' in December 2008 aimed at helping businesses meet the challenges of the economic downturn.
The government later extended this tax break in the May budget to allow small businesses to claim a 50% tax deduction on eligible assets bought by 31 December 2009.
The links below are to assist businesses in understanding the business tax break, who is eligible, and how to claim the tax break for your business:
Basic information
The links below take you to more information on what the business tax break is, who can claim and what is eligible for this additional tax deduction.
The business tax break is an extra tax deduction available on the plant and equipment you need to buy to keep your business running.
The tax break covers new, tangible, depreciating assets.
It also covers improvements or additions you make to existing assets.
As the tax break is temporary, there are deadlines that apply, so you must buy and use or install the asset within a set timeframe.
The tax break is in addition to the deduction for the decline in value your business is entitled to claim for an eligible asset.
You may be eligible to claim the business tax break if you:
- carry on a business
- buy the asset by the deadline
- use or install the asset by the deadline
- meet the minimum thresholds
- use the asset principally in Australia and principally in your business, and
- are eligible to claim a deduction for the asset's decline in value under section 40-25 of the Income Tax Assessment Act 1997.
The following links will give you more detailed information about being in business:
The rate of the deduction you can get depends on the annual turnover of your business.
The minimum amount you need to spend also depends on the annual turnover of your business.
If your business (and any businesses you are connected with) turns over less than $2 million a year, you may be able to claim the additional 50% tax deduction. You will also need to spend a minimum of $1,000 on an eligible asset.
If your business turns over $2 million or more a year, then you may be able to claim the 30% or 10% additional tax deduction. You will also need to spend a minimum of $10,000 on an eligible asset.
To qualify for the 50% tax break, you must:
- be a small business (have an annual turnover of less than $2 million)
- buy an eligible asset between 13 December 2008 and 31 December 2009
- meet the $1,000 minimum threshold
- use or install or improve the asset by 31 December 2010
- use the asset principally in Australia and principally for business, and
- be able to claim a deduction for the asset's decline in value under section 40-25 of the Income Tax Assessment Act 1997.
To qualify for the 30% tax break, you must:
- be a business with an annual turnover of $2 million or more
- buy an eligible asset between 13 December 2008 and 30 June 2009
- meet the $10,000 minimum threshold
- use or install or improve the asset by 30 June 2010
- use the asset principally in Australia and principally for business, and
- be able to claim a deduction for the asset's decline in value under section 40-25 of the Income Tax Assessment Act 1997.
If you miss the 30% deadlines, you will qualify for the 10% tax break, if you:
- are a business with an annual turnover of $2 million or more
- buy an eligible asset between 1 July 2009 and 31 December 2009
- meet the $10,000 minimum threshold
- use or install or improve the asset by 31 December 2010
- use the asset principally in Australia and principally for business, and
- can claim a deduction for the asset's decline in value under section 40-25 of the Income Tax Assessment Act 1997.
You will also qualify for the 10% tax break if you:
- are a business with an annual turnover of $2 million or more
- buy an eligible asset between 13 December 2008 and 30 June 2009
- meet the $10,000 minimum threshold
- use or install or improve the asset between 1 July 2010 and 31 December 2010
- use the asset principally in Australia and principally for business, and
- can claim a deduction for the asset's decline in value under section 40-25 of the Income Tax Assessment Act 1997.
You can view more detailed explanations at:
When we say 'small business' we mean a 'small business entity', which is an individual, partnership, trust or company with annual turnover less than $2 million.
How to work out if you are a small business for an income year and how to work out your annual turnover is explained at Am I eligible for the small business entity concessions?
You apply the company tax rate (30%) when working out the value of the additional tax break to your business.
The following is an example of how this works for a company eligible for the 50% tax break:
Assessable income
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$100,000
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Asset cost
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$2,400
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Tax break deduction
Other tax deductions
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$1,200 (50% of $2,400)
$8,800
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Taxable income
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$90,000 (assessable income - tax deductions)
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Tax on taxable income at 30% rate
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$27,000 (30% x $90,000)
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Tax payable
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$27,000
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If the company had assessable income of $100,000 but no deductions, their taxable income would be $100,000 and their tax payable $30,000. When the additional tax break deduction is available, it reduces the amount of tax the company has to pay by $360. The company is also able to claim an amount for the decline in value in relation to the asset.
Where an asset is a partnership asset, the partnership can claim the tax break.
If you or a partner individually own assets for use in the business, then the owner may still be able to claim the tax break for the asset.
Partnerships and the tax break are discussed on the page Which tax payer is entitled to the tax break deduction? under the heading 'Partnership assets'.
The tax break can apply to you. You use your marginal tax rate to work out how much the tax break is worth to you.
If you are an individual who generates personal services income but you are not a 'personal services business', you will not be able to claim the tax break in relation to your personal services income.
If you are a personal services entity (company, partnership or trust) carrying on business and you receive personal services income, you may be able to claim the tax break in relation to the personal services income.
For more information, see Personal services income for companies, partnerships and trusts (NAT 72510, 535KB).
Information kit
Here are some information materials which help to explain the business tax break. Feel free to use these for your own information, or for communicating throughout your organisation or membership. If you need more information, you can phone our business tax break info line on 1300 337 921. We're happy to help.
Handout/overview
Key points about the business tax break are explained in our overview handout in Portable Document Format (PDF) 249KB.
Our myth buster (PDF 166KB) fact sheet helps to clear up a number of misconceptions about the business tax break.
Our tips for business (PDF 172KB) fact sheet includes information about who and what is eligible for the business tax break and information about deadlines.
Below is an article on the business tax break. Please feel free to use this content on your website or in your newsletter or publication.
Time is running out for the business tax break
If you own a business, and there are business assets you're thinking of investing in, you can take advantage of the extra tax deduction available through the business tax break. This is also known as the 'investment allowance'.
Time is running out though - you need to buy the asset, or at least enter into a contract to buy it, on or before 31 December 2009.
The amount of the deduction depends on your annual turnover:
If your business has an annual turnover of less than $2 million, you can claim an extra tax deduction of 50% for eligible assets costing $1,000 or more.
If your business turns over $2 million or more, you can still claim an extra 10% tax deduction for eligible assets costing $10,000 or more.
Regardless of your turnover, you have to use the asset principally in Australia and principally for business, and you need to use it (or install it ready for use) by 31 December 2010.
You claim the additional tax deduction in your income tax return for the year you first use or install the asset (as long as you meet all other eligibility criteria).
For example, if you decide to buy a new vehicle for your business in December 2009 but it isn't delivered until February 2010, you can still claim the tax break in your 2009-10 income tax return.
You can also add together the cost of certain assets to meet the $1,000 or $10,000 thresholds, such as assets that form part of a set (for example, a base station and handsets for a two-way radio) or assets that are identical. Each item needs to be a new, tangible and depreciating asset.
Substantial improvements, additions and alterations may also be eligible, but repairs are not. For example, you can claim the business tax break for a new improved engine you buy for a business vehicle but you can't claim for mechanical repairs.
More information
Visit the Australian Taxation Office website www.ato.gov.au or talk to your tax agent to find out more about how the tax break works and whether it might benefit you.
Or you can call the business tax break info line on 1300 337 921.
Materials in languages other than English
Handout
Brochure
Message for vendors
What to say in advertising about the business tax break
The business tax break purchase deadline of 31 December 2009 is looming and many businesses are now mentioning this extra tax deduction in their advertising.
If you're a vendor advertising the business tax break or 'investment allowance', it's important that what you say is accurate and doesn't mislead your customers.
Step 1: Check accuracy
Check what you want to say against information you'll find on this site, or phone the business tax break info line on 1300 337 921. We're happy to help.
Please don't use terms such as 'rebate' or 'offset' to describe the business tax break. It's an extra tax deduction and terms and conditions apply.
Also, don't tell customers all they need is an Australian business number (ABN) to qualify. There are a number of eligibility criteria for both the buyer and the asset to qualify for the tax break.
Step 2: Refer your customers to more information
You could advise your customers that it's easy to find out more about the business tax break. For example, you could insert the following into your advertising:
For more information about the business tax break, talk to your tax agent, phone the info line on 1300 337 921 or search for 'business tax break' on www.ato.gov.au
You can also phone the info line if you need clarification. Help your customers make an informed decision - it will benefit both of you in the end.
Buying assets
If you are considering buying an asset and claiming the business tax break, remember that the asset must meet the eligibility criteria.
The links below take you to detailed information on eligibility requirements and the sort of assets covered.
What makes an asset 'eligible'?
An eligible asset is:
- new
- tangible
- a depreciating asset
- costs $1,000 or more for small business, or $10,000 or more for larger businesses
- bought and used or installed by the deadline
- used principally in Australia and principally for business
- eligible for a deduction for decline in value under section 40-25 of the Income Tax Assessment Act 1997.
The business tax break also covers new investment in an existing asset such as improvements - but it cannot be used for repairs.
As an asset must be a tangible, depreciating asset for which a deduction for decline in value is available, you may be interested in reading the more detailed explanation at What is an eligible asset?
For more information, also see What is new investment?
The tax break is for 'new, tangible depreciating assets'. The asset has to be something physical, like plant and equipment, and it has to be new - meaning that it hasn't already been used anywhere, by anyone, for any purpose (except for reasonable testing and trialling).
You could buy:
- cars, vans, trucks and other business vehicles
- computer hardware (but not software)
- tools
- furniture
- capital improvements to existing machinery and equipment.
You can buy sets of things which are meant to be used together (for example a base station and handsets as a two-way radio) and claim them as long as their total cost meets the minimum thresholds.
You can also buy identical things (for example 30 identical café chairs) or things that are substantially identical (for example 15 red café chairs and 15 blue café chairs of the same make).
If you need to improve some existing assets, such as buying a new engine for a harvester, you can do that too - but you can't claim the tax break for repairs.
These assets need to be used principally in Australia and principally for business.
You will find a more detailed explanation at:
A 'depreciating asset' is one that has a limited effective life that can reasonably be expected to decline in value over time.
For the purposes of the tax break, eligible assets are those tangible depreciating assets for which a deduction for decline in value is available (under section 40-25 of the Income Tax Assessment Act 1997).
For more information, see What is an eligible asset?
Substantial improvements, additions, alterations, modernisations or reconstructions may be eligible. Repairs cannot be claimed.
For more information, see What is an eligible asset? under the heading 'Are repairs eligible for the tax break?'.
If you are self-employed or you carry on business in a partnership including at least one individual taxpayer, you can claim the tax break for vehicles if you use the log book, one-third of actual expenses or 12% of original value method to calculate your vehicle's expenses. You must also meet all other eligibility requirements for the tax break.
You can't get the tax break for vehicles where you use the cents per kilometre method.
If you carry on business other than as an individual or in a partnership including at least one individual taxpayer (for example, through a company or trust), these rules do not apply to you. You will be able to claim the tax break for a car if you meet all the eligibility criteria.
For more information, see What is an eligible asset? under the heading 'Cars'.
You may also be interested in What is new investment? under the heading 'Demonstrator vehicles'.
The tax break is also available on cars costing more than $57,180. However, your deduction is worked out using a cost price of $57,180 (net of your input tax credits).
Generally, the lessor, not the lessee, would claim the tax break on cars held under a lease. However, if the car is a luxury car, the lessee may qualify for the tax break.
For more information, see Small business and general business tax break: hire purchase arrangements and luxury car leases - investment commitment time.
Computers and their component parts, such as the mouse, keyboard and monitor, are eligible, but pre-loaded application software used on them is not.
You need to work out the value of that software and the computer based on how much they would cost if bought separately. You then work out the proportion of the purchase price that relates to the computer only. You base your tax break deduction on this amount.
The cost of operating software that forms part of the computer does not need to be separated out from the cost of the computer.
You'll find an example of a business buying a computer at What is an eligible asset?
Eligible assets held under a lease or financed through a hire purchase arrangement may still qualify for the tax break. However, the tax break is claimed by the business which can claim deductions for the asset's decline in value.
For more information, see Small business and general business tax break - hire purchase arrangements and luxury car leases - investment commitment time.
If you buy an asset to resell it soon after you bought it, it's unlikely the asset will be 'used for the principal purpose of carrying on a business'. You would not be entitled to claim the tax break.
If you make a false or misleading statement in your income tax return by making a claim for the tax break that you know you are not entitled to, you may have to pay the tax shortfall, tax shortfall penalty, and interest charges.
You can add together the cost of items which form part of a set or are identical to meet the $1,000 or $10,000 thresholds.
Each item still needs to meet all the other eligibility criteria, such as being a new, tangible and depreciating asset.
For more information, see What can be counted towards the threshold? under the heading 'Batches and sets of assets'.
A set is a group of items designed and intended to be used together, dependent on each other or marketed as a set.
Examples of things that could be considered a set are:
- a two-way radio system and base station
- sets of tables and chairs (for example a restaurant or coffee shop)
- a set of wheels for a truck
- a set of chef's knives.
Things that are bought together, even if bought on the same day and are the same brand, may not be a set.
For example, a range of power tools such as a drill, sander, power saw and a staple gun is not a set; a lawn mower, leaf blower and chain saw do not make up a set.
You'll find information which will help you work out whether assets are 'sets' at What can be counted towards the threshold?
Substantially identical means the same in most respects, for example, the same model garden chairs would be substantially identical even if they were different colours.
A group of different styled chairs such as a bar stool, canvas chair and office chair are not substantially identical even if they are all chairs.
For more information, see What can be counted towards the threshold?
You can't claim the tax break for things such as:
- second-hand goods
- cars where you use the 'cents per kilometre' method
- a depreciating asset you buy only to resell
- land
- capital works - including most buildings
- water facilities such as dams, bores or wells
- trading stock, or
- intangibles such as software or intellectual property rights, among other items.
You'll find out more about what sort of things are and are not covered at:
Second-hand assets are not eligible.
You'll find a definition of what is 'new' at What is new investment?
What are the deadlines?
There are a number of deadlines you should be aware of.
Businesses with less than $2 million annual turnover
To qualify for the 50% tax break you must:
- buy the asset between 13 December 2008 and 31 December 2009, and
- use or install the asset between 13 December 2008 and 31 December 2010.
Businesses with annual turnover of $2 million or more
To qualify for the 30% tax break you must:
- have bought the asset between 13 December 2008 and 30 June 2009, and
- use or install the asset between 13 December 2008 and 30 June 2010.
If you miss the 30% deadlines, you will qualify for the 10% tax break if you:
- have bought your asset between 13 December 2008 and 30 June 2009, and
- use or install the asset between 1 July 2010 and 31 December 2010.
You will also qualify for the 10% tax break if you:
- buy your asset between 1 July 2009 and 31 December 2009, and
- use or install the asset between 1 July 2009 and 31 December 2010.
You need to actually enter into the hire purchase agreement or luxury car lease to commit to invest in the asset by the deadline that applies to you, not just order the asset.
For more information, see Small business and general business tax break - hire purchase arrangements and luxury car leases - investment commitment time.
How much you need to spend depends on your annual turnover. If your annual turnover is less than $2 million, you need to spend at least $1,000.
For all other businesses, the minimum investment is $10,000.
There is no upper limit on how much you can spend.
For more information, see Which new investment threshold applies.
How much you paid to own or hold the asset makes up the 'first element of cost' of an asset (excluding any GST claimed as an input tax credit). You work out the 'first element of cost' as at the time you begin to hold the asset. The 'second element of cost' of an asset includes the cost of improvements to the asset.
For more information, see What is a recognised new amount? under the heading 'What is the asset's cost?'.
This means that the asset is bought for business use and that it is to be used principally in the business.
For more information, see:
Using or installing assets
Once you have bought an eligible asset, you still need to use or install the asset by certain deadlines to be able to claim the tax break.
If you have invested in improving an existing asset, you need to finish those improvements by the relevant deadlines.
The links below are to assist you to find out more about what is meant by 'using', 'installed ready for use', and the deadlines.
These terms refer to the points in time when you have started using the asset or have it set up ready to use after you've bought it.
Businesses with less than $2 million annual turnover
To qualify for the 50% tax break you must:
- buy the asset between 13 December 2008 and 31 December 2009, and
- use or install a new asset or finish improving an existing asset by 31 December 2010.
Businesses with annual turnover of $2 million or more
To qualify for the 30% tax break, you must:
- have bought the asset between 13 December 2008 and 30 June 2009, and
- use or install a new asset or finish improving an existing asset between 13 December 2008 and 30 June 2010.
If you miss the 30% deadlines, you will qualify for the 10% tax break if you:
- have bought the asset between 13 December 2008 and 30 June 2009, and
- use or install a new asset or finish improving an existing asset between 1 July 2010 and 31 December 2010.
You will also qualify for the 10% tax break if you:
- buy the asset between 1 July 2009 and 31 December 2009, and
- use or install a new asset or finish improving an existing asset between 1 July 2009 and 31 December 2010.
For more information, see What is a recognised new investment amount? under the heading 'When was the new investment put to use?'.
If you miss the purchase deadlines and/or the installation and first use deadlines, you will miss out on the temporary business tax break.
You can still claim the tax break as long as all the eligibility criteria were met and you were eligible to claim the asset's decline in value at the time you used it.
If you buy an asset to resell it soon after you bought it, it's unlikely the asset will be 'used for the principal purpose of carrying on a business'. You would not be entitled to claim the tax break.
If you make a false or misleading statement in your income tax return by making a claim for the tax break that you know you are not entitled to, you may have to pay the tax shortfall, tax shortfall penalty, and interest charges.
What does 'used for the principal purpose of carrying on a business in Australia' mean?
This means that at the first time you started to use the asset or had it installed ready for use, it was reasonable to conclude that the asset was used principally in Australia for the principal purpose of carrying on a business. An asset does not necessarily have to be located in Australia at its first use time. However, the purpose test will not be satisfied if it is reasonable to conclude that it will never be used in Australia.
For more information, see What is a recognised new investment amount? under the heading 'Was the purpose test satisfied?'.
Claiming assets
To receive your deduction for the business tax break you must claim it in the income tax return or Business and professional items schedule if that applies to you.
The links below take you to information on how to claim and how to work out the value of the deduction to your business.
The business tax break is not a refund, rebate or tax offset. It is a tax deduction to reduce the assessable income of your business.
One way to work out the value of the deduction to you is by multiplying the amount of the deduction by your relevant marginal tax rate (30% for businesses carried on by a company).
In most cases, the additional tax deduction will result in a reduced amount of tax payable.
Where the additional tax deduction creates a loss position for your business, the loss is carried forward to be offset against future years' income. You do not receive a cash rebate for this loss amount.
How do I claim the business tax break?
You claim the tax break in your income tax return for the income year in which you first use or install the asset ready for use if you meet all the eligibility requirements for that income year.
The following example shows the effect the tax break has on your tax situation:
Assessable income - tax deductions (including tax break) = taxable income
Taxable income x 30% * company tax rate = tax payable
* If you're a sole trader, your personal income tax rate would apply.
The amount of the deduction is subtracted from assessable income to calculate your taxable income.
For more information, see Claiming business deductions - home.
No. In working out your income tax deduction, you would exclude any GST which is claimed as an input tax credit.
The taxpayer who holds the asset and is entitled to a deduction for its decline in value can claim the deduction (the business tax break).
Each joint owner of the asset is able to claim the tax break on their interest in the asset, as long as all other eligibility criteria are met.
If it is reasonable to conclude that the asset you are using or installing will be used principally for business, you may be eligible for the tax break.
Yes. The tax break has no impact on deductions for an asset's decline in value.
The tax break is in addition to the deduction for the decline in value the business is entitled to claim for an eligible asset.
For information see Capital allowances.
If you make a loss in the income year, the tax deduction will form part of the loss. The usual rules about carrying forward a tax loss will apply.
The tax break is not taken into account in working out the amount of any balancing adjustment amounts, capital gains or capital losses when you sell the asset.
You need the usual paperwork for claiming an income tax deduction, plus evidence (such as a signed and dated contract, lease or a paid invoice) of when you bought the asset and used or installed the asset.
For more information, see Record keeping for small businesses.
You'll find a new label on the income tax return or Business and professional items schedule with instructions for filling it in.
For further information, see How do I claim the business tax break?
You can claim the 50% tax break if you are a small business that turns over less than $2 million a year.
Larger businesses that turn over $2 million or more a year can claim the 30% or 10% tax break.
For example:
Maria is a small business owner who buys a computer for her shop and installs it in June 2009.
The computer costs $2,400 (excluding GST and the cost of software used on the computer). Maria will be able to claim an additional $1,200 tax deduction (50% of $2,400) in her 2008-09 business income tax return.
After applying the 30% company tax rate * (the rate which applies to Maria's business), this tax deduction would reduce the amount of tax Maria's business would have to pay by $360.
* If you're a sole trader, your personal income tax rate would apply.
Another worked example of how a business calculates the additional tax deduction is available at Calculating the bonus deduction.
You claim the tax break in your tax return for the income year in which you first use or install the asset if you meet the eligibility criteria for the tax break deduction for that income year.
As for any capital asset purchase, you report the purchase on your Business activity statement (BAS) - where you also claim any input tax credits you are entitled to for GST paid as part of the price of the asset.
Examples
To help you understand how the business tax break works, here are some examples to illustrate some of the concepts in the links below.
50% tax break example
Maria is a small business owner who buys a computer for her shop and installs it in June 2009.
The computer costs $2,400 (excluding GST and the cost of the software used on the computer). Maria will be able to claim an additional $1,200 tax deduction (50% of $2,400) in her 2008-09 business income tax return.
After applying the 30% company tax rate * (the rate which applies to her business), this tax deduction would reduce the amount of tax Maria's business would have to pay by $360.
* If you're a sole trader, your personal tax rate would apply.
30% and 10% tax break example
Frank owns a bakery which has an annual turnover of $2 million or more. Frank buys an oven for $15,000 on 29 June 2009. The oven is delivered and installed and is used for the first time on 17 August 2009.
For 2009-10, Frank can claim the tax break at the 30% rate. He can claim an extra tax deduction of $4,500 for the 2009-10 income year.
Gail's business also has an annual turnover of $2 million or more. However, due to buying her oven at a different time to Frank (after 30 June 2009), she will be eligible for the 10% additional tax break and not the 30% rate. Gail buys an oven for $15,000 on 10 August 2009 and uses it for the first time on 17 August 2009. Gail's extra tax deduction will be $1,500 for the 2009-10 income year.
Buying a set of assets
Frederica operates a courier service with an annual turnover of less than $2 million. This means she would need to spend a minimum of $1,000 on an asset for it to be eligible for the 50% tax break.
In July 2009 she buys a base station for a two-way radio system she uses in her main office to communicate with drivers who are out making deliveries. At the same time she buys a handset for each delivery van. The base station costs $500 and the seven handsets cost $100 each.
The base station and handsets are a set as they are designed and intended to function together. The assets are used straight away in the business. The combined cost of the base station and hand sets is $1,200 which is above the tax break minimum threshold of $1,000 for a small business. Frederica can therefore claim an additional $600 tax deduction in her 2009-10 income tax return.
More information
If you require more information, you can phone our business tax break info line on 1300 337 921.
The links below are the more detailed guide, fact sheets and the legislation.
Last Modified: Wednesday, 9 December 2009
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