Edited version of private ruling

Authorisation Number: 1011740669044

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Ruling

Subject: Small Business and General Business Investment Allowance

Question

Is the asset which you acquired eligible for the investment allowance in Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2009

The scheme commences on:

1 July 2008

Relevant facts and circumstances

The taxpayer is a partner of a partnership. They purchased a motor vehicle. The vehicle was delivered and ready for use prior to the relevant date.

The taxpayer is the holder of the asset and it is not a partnership vehicle.

The taxpayer maintained a log book and established that more than 50% of usage of the vehicle was work-related.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 41-10 ,

Income Tax Assessment Act 1997 Section 41-20 ,

Income Tax Assessment Act 1997 Section 41-25 and

Income Tax Assessment Act 1997 Section 328-110 .

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 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 of the ITAA 1936 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 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

Unless otherwise stated, all legislative references in the following Reasons For Decision relate to the ITAA 1997.

Summary

The asset will qualify as new investment for the purposes of Division 41.

Detailed reasoning

The Small Business and General Business Tax Break is available for new, tangible, depreciating assets, as well as for new investment in existing eligible assets, for which a deduction is available under Subdivision 40-B of the ITAA 1997.

Amongst other circumstances, the deduction is available in respect of qualifying investments where the asset is used in the conduct of the business of a partnership. If the asset in question is not a partnership asset and an individual partner is the holder of the asset, the partner may still be able to claim deductions for the tax break in relation to the asset provided all of the relevant criteria are satisfied.

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 and cannot use the $1,000 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) 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. Nevertheless, a partner may qualify for either the 30% or 10% tax break rates.

Section 41-10 states the circumstances in which you have entitlement to a deduction for new investment under the tax break. Under section 41-10, an amount of expenditure must be a recognised new investment amount in order to qualify for the allowance.

Section 41-20 defines what constitutes a recognised new investment amount. Paragraph 41-20(1)(b) states that an amount is a recognised new investment amount for the income year in relation to an asset if the relevant investment commitment time occurs in the period commencing 13 December 2008 and ending 31 December 2009. Furthermore, in order to qualify for the 30% rate the investment commitment time must be earlier than 1 July 2009.

Section 41-25 defines investment commitment time. Paragraph 41-25(1)(a) states that the investment commitment time for an amount which is included in the first element of cost of a depreciating asset is the time at which you:

(i) enter into a contract under which you hold the asset at that time, or will hold the asset at a later time, or

(ii)  start to construct the asset, or

(iii) start to hold the asset in some other way.

Section 41-25 also states that the investment allowance is only available in respect of assets which the taxpayer holds. Whether you hold a depreciable asset is determined by applying section 40-40. Paragraph 10 of Taxation Ruling TR 2005/20 provides that the default or general rule is that a taxpayer holds an asset if they own the asset.

Paragraph 41-20(1)(d) specifies that when a taxpayer first starts to use an eligible asset it must be reasonable to conclude that the asset will be used principally in Australia for the principal purpose of carrying on a business (the purpose test).

In précis, in order to qualify to claim the investment allowance in respect of an asset, a taxpayer must hold the asset, the expense must be a recognized new investment amount, the expenditure must be incurred in the relevant investment commitment time and the taxpayer's use of the asset must satisfy the purpose test. Provided that these elements are satisfied, it is not an impediment to a successful claim that an asset employed in the business of a partnership is held by a partner rather than the partnership itself.

In the present case, it seems clear that the taxpayer holds the vehicle. The vehicle met the purpose test as, based on the log book data, it would be reasonable to conclude at the first use time that it would be used for the principle purpose of carrying on a business in Australia. The investment commitment time for the vehicle occurred when the taxpayer entered into a contract to acquire it. The first use time then occurred prior to the relevant date.

Accordingly, as the purchase of the vehicle meets the relevant requirements, it would qualify for a deduction amounting to thirty per cent of the recognised new investment amount.

It should be noted that, as the value of the car exceeds the luxury car limit in respect of the relevant year, the deduction will be limited to 30% of that limit.

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