Edited version of private ruling

Authorisation Number: 1011504313258

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Ruling

Subject: Small business and general business tax break

The Trustee entered into a contract to acquire a new motor home prior to 30/6/2009. The motor home has been custom built exclusively for the Trustee. Whilst the motor home is built by a specialist manufacturer there are a number of parts purchased from numerous suppliers both in Australia and overseas.

The motor home is on schedule to be completed by the 30/06/2010 except for the engine. The engine is a diesel engine which is built in Europe.

As the Australian Government is changing the emissions regulations from Euro 4 to Euro 5 the Trustee is required to fit the new Euro 5 emission engine. The manufacturer has advised that the new Euro 5 engines have a 20 week lead time from Europe. These engines have not been available to order until now.

Once the engine is received, installation and testing will take around 4 weeks. It is expected the motor home will be fully operational by the end of 2010.

The incentive to purchase the motor home was based on the government's business tax break of 30%.

In order to qualify for this incentive the motor home had to be completed and in use by 30/6/2010.

The Trustee is seeking a private ruling based on the abnormal circumstances which are outside the control of both parties.

The Trustee has also provided details about the anticipated business use of the motor home:

The nature of our industry requires us to travel across Australia to various events and functions that are usually conducted over a 3 or 4 day period. The motor home will be used strictly for business purposes and will be utilised for, but not limited, to the following:

Transportation of retail goods being sold at events and functions

· Transportation of company members and staff to and from events and functions

· Accommodation for company members and staff while working at events and functions

· Transportation and storage of valuable goods owned by the company

· Mobile office

The Tax Break

The Tax Break is limited to new, tangible, depreciating assets for which a deduction is available under Subdivision 40-B of the Income Tax Assessment Act 1997 ('ITAA 1997').

'Depreciating assets' has the meaning given by Division 40 of the ITAA 1997. It excludes most intangible assets, land and trading stock. Tangible depreciating assets include business machinery and equipment.

New investment in relation to an asset (usually the asset's GST exclusive cost) needs to exceed a certain threshold before it can qualify for the Tax Break. The new investment threshold is $1,000 for small business entities and $10,000 for all other taxpayers.

A taxpayer must also be able to demonstrate that at the time they started to use the asset or had it installed ready for use, it was reasonable to conclude that the asset was to be principally used in Australia for the principal purpose of carrying on a business.

Claiming the Tax Break

A taxpayer who is entitled to the capital allowance deduction under Subdivision 40-B of the ITAA 1997 in relation to the asset's decline in value is entitled to claim the tax break. Provided all the eligibility criteria are met, the income year in which the Tax Break can be claimed will generally be the income year in which the taxpayer first puts the asset to use.

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 will be the point in time the taxpayer has:

· entered into a contract under which they hold the asset or will start to hold it at some point in time;

· started to construct the asset; or

· started to hold the asset in some other way

Where a taxpayer enters into a contract to have an eligible asset constructed to meet their specifications, the investment commitment time is determined by when the contract was entered into and not when the physical construction of the asset occurred - refer paragraph 41-25(1)(a) of the ITAA 1997.

To qualify for the 30 percent bonus deduction a taxpayer must:

· Commit to investing in an asset between 13 December 2008 and 30 June 2009;and

· First start to use the asset or have it installed ready for use on or before the 30 June 2010.

To qualify for the 10 percent bonus deduction a taxpayer must:

· Commit to investing in an asset by 31 December 2009; and

· First start to use the asset or have it installed ready for use on or before the 31 December 2010.

A taxpayer will also qualify for the 10% bonus deduction if they:

· Commit to investing in an asset by 30 June 2009; and

· First start to use the asset or have it installed ready for use after 30 June 2010 but on or before 31 December 2010.

Application to your circumstances

The asset acquired by the Trustee is a new tangible asset for which a deduction is allowable under Subdivision 40-B of the ITAA 1997. The cost of the asset is in excess of $10,000 (exclusive of GST).

The Trustee has confirmed that the asset will be used principally for business purposes within Australia. Therefore the asset is eligible for the General Business Tax Break.

Although the Trustee entered into a contract to acquire the asset prior to 30 June 2009, the asset has not been used or installed ready for use prior to 30 June 2010. Therefore the Trustee will not be eligible for the 30% bonus deduction.

Provided that the asset is installed and ready for use before 31 December 2010, the Trustee will qualify for the 10% bonus deduction.

Division 41 of the ITAA 1997 does not contain any legislation that allows the Commissioner to exercise any discretion for circumstances beyond the Trustee's control.