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Edited version of private ruling
Authorisation Number: 1011819551528
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Ruling
Subject: Small business and general business tax break
Question
Does the expenditure on the asset qualify for the 50% deduction available under Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997) as the asset's first use time was after 31 December 2010?
Answer: No.
This ruling applies for the following period:
1 July 2010 to 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
The contract date for the brand new asset was prior to 30 June 2009 and a deposit of over $1,000 (exclusive of GST) was paid.
The construction of the asset was scheduled to be completed by 31 December 2010. Due to unfavourable weather conditions during construction, the contractors could not finish the asset by 31 December 2010. The asset is now complete and in use by you in your business.
You strongly believe that the expenditure you incurred on the asset should qualify for the investment allowance. You complied with all the requirements for claiming the investment allowance, however, due to an act of nature the construction of the asset was not completed by 31 December 2010.
The main aim of the government was to create investment and jobs by introducing the small business and general business tax break legislation and your action has completely achieved that. Also, if weather conditions had been favourable, the asset would have been completed in time as per the contract.
You would like to know the ATO's position as to whether you will be eligible for the investment allowance of 50% on the construction of the new asset.
Relevant legislative provision
Income Tax Assessment Act 1997 paragraph 41-20(1)(c).
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
The small business tax break
Under the Tax Laws Amendment (Small Business and General Business Tax Break) Act 2009 a deduction is available for eligible expenditure on certain new business investment in tangible, depreciating assets. The details of this investment allowance are contained in Division 41 of the ITAA 1997
Small business entities are able to claim a bonus tax deduction of 50% (the tax break) for eligible assets costing $1,000 or more (exclusive of GST) that they commit to investing in within the investment commitment time and first use the asset by the required period.
Under paragraph 41-20(1)(c) of the ITAA 1997 the small business entity must first use the asset, or have it installed ready for use, on or before 31 December 2010.
The Revised Explanatory Memorandum to Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009 at paragraph 1.114 notes 'for each new investment in an eligible asset, this first use time needs to occur on or before 31 December 2010 for the amount to be a recognised new investment amount'.
Application to your circumstances
The construction of the new asset was not completed by 31 December 2010. Therefore you did not use this asset or have it installed ready for use by 31 December 2010. Therefore you have not satisfied the first use time requirement under paragraph 41-20(1)(c) of the ITAA 1997.
It is noted that you have set out circumstances beyond your control, however, the Commissioner does not have any power to exercise discretion to extend the time period under paragraph 41-20(1)(c) of the ITAA 1997.
Therefore you cannot claim the 50% tax break for your expenditure on your new asset.
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