Edited version of private ruling

Authorisation Number: 1011510915308

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Ruling

Subject: Tax break - year of claim - used or installed ready for use

Question:

If you commit to purchasing an asset during the investment commitment time but do not use or hold the asset ready to use until after 1 July 2010, are you able to claim the Small Business Tax Break in the 2009-10 income year?

Answer: No

This ruling applies for the following period:

1 July 2009 to 30 June 2010.

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You are purchasing an asset. You placed the order and paid a deposit before 31 December 2009 and you were quoted that delivery would be in X months.

Due to circumstances that you had no influence over, the delivery did not occur within the advised period and as at 30 June 2010 you had not yet received the asset.

You expect to receive the asset before 31 December 2010, which is within the timeframe to claim the Small Business Tax Break. However, had the asset been delivered within the five months that had been quoted when you had ordered the asset, the Small Business Tax Break would have been able to be claimed in the 2009-10 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 40-25.

Income Tax Assessment Act 1997 Section 328-110.

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Small business tax break

The Tax Laws Amendment (Small Business and General Business Tax Break) Act 2009 received Royal Assent on 22 May 2009. This has been inserted into the Income Tax Assessment Act 1997 (ITAA 1997) as Division 41.

Small business entities are now able to claim a bonus tax deduction for 50% for eligible assets costing $1,000 or more (exclusive of GST) that they:

- commit to investing in between 13 December 2008 and 31 December 2009, and

- start to use or have installed ready for use by 31 December 2010.

To qualify for the 50% rate you need to meet the definition of a small business entity in section 328-110 of the ITAA 1997. This generally means that the taxpayer is carrying on a business and has an annual turnover of less than $2 million.

Businesses can commit to investing in an asset by:

- entering into a contract under which they will hold the asset, or

- starting to construct the asset.

Eligible assets

The tax break is available for new tangible, depreciating assets for which a deduction is available under Subdivision 40-B of the ITAA 1997 and new investment in existing eligible assets.

Section 40-25 of the ITAA 1997 allows you to deduct from your assessable income an amount equal to the decline in value of a depreciating asset you hold to the extent in which it is used to produce assessable income.

Under section 40-25 of the ITAA 1997 a deduction from your assessable income is only available for depreciating assets that you hold.

Claiming the tax break

The tax break is claimed as a tax deduction in the income tax return for the income year in which the taxpayer uses the asset or installs it ready for use.

The tax break is claimed by the taxpayer that is entitled to deductions for the asset's decline in value under Subdivision 40-B of the ITAA 1997. Section 40-40 of the ITAA 1997 contains a table that specifies which entity 'holds' an asset for Division 40 of the ITAA 1997 purposes and therefore who is entitled to claim capital allowance deductions (and the tax break).

Application to your circumstances

You placed an order and paid a deposit for an asset before 31 December 2009. The delivery of the asset was quoted as being a number of months. Due to circumstances beyond your control the asset was not delivered before 30 June 2010.

Therefore the asset was not used or installed ready for use in the 2009-10 income year. You are not able to claim a deduction for the depreciating asset (the asset) in the 2009-10 income year under section 40-25 of the ITAA 1997. As a deduction is not available to you under Subdivision 40-B of the ITAA 1997 in the 2009-10 income year, you are not able to claim the tax break in that year.

We have not considered if you are eligible for the tax break. You will have to meet all of the eligibility requirements to be able to claim the tax break.

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