Edited version of private ruling

Authorisation Number: 1011494598127

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Ruling

Subject: General Business Tax Break

Question 1

Does the taxpayer qualify for the 10% tax break provided by Division 41 of the Income Tax Assessment Act 1997 for the year ended 30 June 2010?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

December 2009

Relevant facts and circumstances

The taxpayer is a trust.

The trustee of the trust is a company.

The trust carries on a commercial leasing business.

The trust owns a number locations within Australia with a number of tenants.

The total turnover was over $2 million for the year ended 30 June 2009.

The taxpayer is connected with several other business entities so it is classified as having over $2 million in aggregated turnover.

The trustee accepted a quote from a supplier and in December 2009 entered into a contract to have the existing air conditioning systems for one of the properties replaced.

A copy of the quote has been supplied which advises a total cost for the supply and installation of the ducted systems and the decommissioning of the existing cooling tower.

The installation of the systems was completed during 2010.

The total cost was divided between the following components:

Supply and installation of the new air conditioners

Removal of the old cooling tower from the roof by crane

Removal and replacing the existing flexible duct work

Two different models of the ducted systems were supplied and installed.

Both models had a unit cost of over $10,000.

You have dissected the cost of the new assets and allocated the cost between Division 43 and Division 40 of the Income Tax Assessment Act 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 Division 41

Income Tax Assessment Act 1997 Division 43

Reasons for decision

Summary

The taxpayer is eligible to claim the 10% tax break on the cost of the new asset as worked out for capital allowances purposes under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997).

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.

Capital expenditure incurred in constructing capital works such as buildings and structural improvements for which a capital works deduction is available under Division 43 of the ITAA 1997 is not eligible for the tax break.

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 2008 and 31 December 2009. 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 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). It must also be reasonable to conclude that the taxpayer will use the asset principally in Australia for the principal purpose of carrying on a business.

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 10% deduction the taxpayer must:

· commit to investing in the asset between 1 July 2009 and 31 December 2009

· meet the new investment threshold of $10,000, and

· first use the asset or have it installed ready for use, or bring the asset to its modified or improved state, on or before 31 December 2010.

The taxpayer entered into a contract in December 2009 for the supply and installation of the new ducted air conditioning systems. Therefore the taxpayer is within the investment commitment time period.

Each unit has a recognised new investment amount of greater than $10,000, thus satisfying the new investment threshold for each individual asset.

The installation of the ducted air conditioning systems was completed by mid 2010 at which time they commenced being used. The first use time criterion has also be satisfied.

As a result the taxpayer qualifies for the tax break at the 10% rate. A bonus deduction can be included for the year ended 30 June 2010 in relation to the new ducted air conditioning systems.

The tax break is not available for amounts included under Division 43 of the ITAA 1997 or amounts included in an assets second element cost under paragraph 40-190(2)(b) of the ITAA 1997.

Disclaimer

You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you (or to someone acting on your behalf).

The Register of private binding rulings is a public record of private rulings issued by the Tax Office. The Register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies.

The rulings in the Register have been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict Tax Office policy or decisions.

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject:

Disclaimer

You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you (or to someone acting on your behalf).

The Register of private binding rulings is a public record of private rulings issued by the Tax Office. The Register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies.

The rulings in the Register have been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict Tax Office policy or decisions.