Edited version of private ruling

Authorisation Number: 1011736201034

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Ruling

Subject: Small business 50% tax break

Question 1

Will the expenditure on the asset qualify for the small business 50% tax break under Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997) if construction of the asset is finished after 31 December 2010?

Answer: No.

Question 2

Does the Commissioner have the power to exercise discretion to extend the first use time under paragraph 41-20(1)(c) of the ITAA 1997?

Answer: No.

This ruling applies for the following period:

1 July 2010 - 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

The taxpayer is a trust carrying on a business. The trust invested in the construction of a new asset for the business. A major consideration in undertaking the investment was access to the small business 50% tax break.

Tax research was undertaken and it was concluded that the capital expenditure on the asset would be classified as plant and therefore an eligible asset for the small business 50% tax break.

The trust committed to the investment prior to 31 December 2009. Design plans were then submitted to Local Council who later requested further information and amendments to the plans, which subsequently delayed the construction of the asset. The asset will not be ready for use before 31 December 2010.

Relevant legislative provisions

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 new investment in tangible, depreciating assets.

Small business entities are able to claim a bonus tax deduction of 50% (the tax break) for eligible assets costing $1,000 or more that they commit to investing in within the investment commitment time and then first use by the required time.

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.

There is no legislative provision to extend the first use time in Division 41 of the ITAA 1997.

The Revised Explanatory Memorandum to Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009 at paragraph 1.114 sets out that 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.

Application to your circumstances

It is noted that you have set out circumstances beyond your control which prevented the construction of the asset being finalised by 31 December 2010, however, the Commissioner does not have the power to exercise discretion to extend the first use time period under paragraph 41-20(1)(c) of the ITAA 1997. You cannot claim the tax break for this expenditure if the construction of the asset is finished after 31 December 2010.