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Edited version of private ruling

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Ruling

Subject: General Business Tax Break

Question 1

Can the Commissioner grant an extension of the 30% tax break under Division 41 of the Income Tax Assessment Act 1997 for three specific vehicles until 31 August of the relevant year?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

February 2009

Relevant facts and circumstances

The taxpayer is a company.

The taxpayer operates a family passenger transport business in Melbourne.

The taxpayer is a medium sized business with an annual turnover of approximately $30,000,000.

The taxpayer ordered three replacement vehicles in February of the particular year.

The taxpayer expected delivery of the vehicles prior to 30 June of the relevant year.

The supplier has recently informed the taxpayer they will be unable to deliver the vehicles until late July of the relevant year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 Division 41

Reasons for decision

Summary

Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997) does not include any legislation that allows the Commissioner to extend the period to which the 30% tax break applies.

Detailed reasoning

The tax break is available for new investment in a tangible depreciating asset for which a capital allowance deduction is available under section 40-25 of the ITAA 1997.

An asset is new for the purpose of the tax break if it has never previously been used or installed ready for use either by the taxpayer or another entity for any purpose, anywhere.

In order for the taxpayer to be entitled to claim the tax break, they must be entitled to deductions for the asset's decline in value. This means the taxpayer must be the holder of the asset for the purposes of Division 40 of the ITAA 1997. To claim the tax break, the taxpayer must also use the asset for the principal purpose of carrying on a business.

New investment in relation to an asset needs to meet a certain threshold before it can qualify for the tax break. The new investment threshold for non small business entities is $10,000 (see section 41-35 of the ITAA 1997). The taxpayer needs to satisfy the new investment threshold for each individual asset.

Recognised new investment amounts are the units used to work out if the taxpayer has satisfied the new investment threshold and the amount of the tax break they are entitled to.

To be a recognised new investment amount for an asset in any income year, the amount needs to be included in asset's cost as worked out in accordance with Subdivision 40-C of the ITAA 1997. The cost of an asset for capital allowances purposes only includes capital expenditure and does not include amounts that can be deducted under other provisions. The cost of an asset is reduced for any input tax credits the taxpayer is entitled to claim.

In order for an amount to be a recognised new investment amount, its investment commitment time must be between 13 December and 31 December of the particular year. The investment commitment time is when the taxpayer is committed to investing in an eligible asset.

For each new investment in an eligible asset, the first use time needs to occur on or before the 31 December 2010 for the amount to be a recognised new investment amount. For new assets, the first time use is when the taxpayer starts to use the asset or have it installed ready for use (see paragraph 41-30(a) of the ITAA 1997).

Provided all the eligibility criteria are satisfied for the income year, the tax beak can be claimed as a deduction in the income tax return for the income year in which the asset is first used or installed ready for use.

For entities that are not a small business entity, the tax break is worked out using a rate of either 30% or 10%, depending on when they committed to investing in the asset and used it, or installed it ready for use.

To qualify for the 30% deduction the taxpayer must:

The taxpayer ordered 3 replacement vehicles in February of the particular year; as such it appears requirements for the investment commit time has been met.

We are unable to advise whether the new investment threshold for each asset has been met as no costs for the vehicles were provided.

The taxpayer has not started to use the assets or had them installed ready for use on or before the 30 June of the relevant year, as the three vehicles have not yet been delivered.

Therefore the taxpayer does not qualify for the 30% tax break in relation to the three vehicles for the year ended 30 June of the relevant year.

Division 41 of the ITAA 1997 does not allow the Commissioner to extend the period under which the 30% rate of deduction for the tax break may be applied.

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