Warning: This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
Which new investment threshold applies?
New investment in relation to an asset (usually the asset's goods and services tax (GST) exclusive cost) needs to meet a certain threshold before it can qualify for the tax break. The new investment threshold is:
- $1,000 for small business entities, and
- $10,000 for all other taxpayers.
When is a business a small business entity - aggregated turnover less than $2 million
A taxpayer is a small business entity for an income year, rather than at a point in time.
You are a small business entity for the current income year if you carry on a business in the current year and:
- carried on a business during the previous income year and your aggregated turnover for that year was less than $2 million, and/or
- expect your aggregated turnover to be less than $2 million again for the current income year.
However, where a partner in a partnership is claiming the tax break, the partner is not a small business entity for the purposes of Division 328 of the ITAA 1997 and cannot use the $1000 threshold or the 50% deduction rate applicable to small business entities. Tax Laws Amendment (2009 Measures No. 2) Act 2009, which applies to assessments for the 2007-08 income year and later income years, inserted subsection 328-110(6) of the ITAA 1997 to remove doubt that a partner in a partnership cannot be a small business entity in their capacity as a partner for the purposes of the small business entity rules.
There is a special rule for fuel retailers to work out if they are a small business entity. Retail fuel sales are not included in their turnover. This special rule is in the law because sales of retail fuel are characteristically high in sales volume with low profit margins.
For more information about small business entities, see Am I eligible for the small business entity concessions?
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At what point in time do you need to be a small business entity?
To qualify for the lower threshold, you need to be a small business entity for the income year in which you undertake new investment in an eligible asset, put that investment to use, or claim the tax break.
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Example
Emily operates a small business repairing jewellery. She meets the definition of a small business entity and uses capital allowances rules for small business entities in Subdivision 328-D of the ITAA 1997.
On 15 May 2009, she enters into contracts to purchase a new desk for $500 and a new laptop for $1,500. Both assets are to be delivered on 30 May 2009. Emily wants to work out whether she can claim the tax break on each asset. As a small business entity, Emily qualifies for the $1,000 new investment threshold.
The desk is a low cost asset with a value less than $1,000, so Emily can claim an immediate write-off for the desk under Subdivision 328-D. However, she can not claim the tax break as the new investment threshold has not been met in relation to the asset.
The laptop is a new, tangible depreciating asset. If Emily had not chosen to use the capital allowances rules in Subdivision 328-D, she would have been able to claim a deduction under section 40-25.
The cost of the laptop is more than $1,000, so Emily allocates this asset to a small business pool under Subdivision 328-D. The effective life of the laptop is three years, so she allocates the laptop to a general small business pool for assets with effective lives of less than 25 years. The new investment threshold is also satisfied. On this basis, Emily can claim the tax break on the laptop at the 50% rate.
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Last Modified: Tuesday, 1 September 2009