Edited version of private ruling

Authorisation Number: 1011867231580

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Ruling

Subject: Small Business Investment Allowance

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

Yes.

This ruling applies for the following period:

Year ending 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

The taxpayer commenced discussions with a supplier regarding the purchase of an asset. A quote was subsequently received prior to the end of December 20XX.

The taxpayer confirmed the order for the asset prior to the end of December 20XX. The taxpayer has advised that the contract in respect of the asset was confirmed in December 20XX.

The contract was to the effect that the asset would be delivered and paid for prior to the end of December 20XX. The taxpayer has provided a bank statement showing that the asset was paid for in December 20XX as an internet banking payment to the manufacturer.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 41.

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 qualify as new investment for the purposes of Division 41. The contract to acquire the asset was entered into within the investment commitment time specified in section 41-20.

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 for an amount which is included in the first element of cost of a depreciating asset is the time at which you enter into a contract under which you will hold the asset at a later time.

Consequently, the purchase of the asset will qualify for the investment allowance provided that it was acquired by a contract which was entered into no later than 31 December 2009. The taxpayer entered into an agreement in December 2009 by which it would receive and pay for the asset in December 2010. The taxpayer has thereby entered into a contract under which it will hold the asset at a later time and, therefore, an agreement under which it will hold the asset for the purposes of subparagraph 41-25(1)(a)(i).

Accordingly, the investment commitment time is when the taxpayer entered into the purchase agreement in December 2009. As a consequence, the investment commitment time falls within the period required under section 41-20. As the asset was then installed ready for use before the end of December 2010, the acquisition will qualify for the Investment Allowance under Division 41.