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Edited version of private ruling
Authorisation Number: 1011677389937
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Ruling
Subject: Small Business and General Business Tax Break
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: No.
This ruling applies for the following period
Year ending 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
In June 2010, the taxpayer placed an order to purchase an asset. The intention was to have it ready for use to claim the investment allowance. The equipment was to be used under contract to another entity.
Subsequent to the order being placed, the other entity advised that a different asset was needed to enable the work to be completed. As a consequence, the taxpayer spoke to the supplier regarding cancellation of the original order and replacement with an order for the alternative asset.
Relevant legislative provisions
Division 41 Income Tax Assessment Act 1997
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 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
Unless otherwise stated, all legislative references in the following Reasons For Decision relate to the Income Tax Assessment Act 1997 (ITAA 1997).
Summary
The asset will not qualify as new investment for the purposes of Division 41. The contract to acquire the asset was not entered into within the investment commitment time specified in section 41-25, commencing 13 December 2008 and ending 31 December 2009.
Detailed reasoning
Section 41-10 states the circumstances in which you have entitlement to a deduction for new investment under the Small Business and General Business 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.
Section 41-25 defines investment commitment time. Sub-paragraph 41-25(1)(a)(i) states that the investment commitment time is the time at which you enter into a contract under which you will hold the asset at a later time.
In the present case, the change to the order for the equipment was effected sometime after June 2010. Therefore, the point at which investment commitment time occurs is not within the period required under section 41-25. As a result, the acquisition of the asset will not qualify for the Investment Allowance under Division 41.
Please note that while Division 41allows until 31 December 2010 to first use the asset or have it installed ready for use, the contract to purchase it must have been entered into no later than 31 December 2009. On that basis, the asset originally ordered would similarly not have qualified for the allowance.