Edited version of private ruling

Authorisation Number: 1011871291718

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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

No.

This ruling applies for the following period:

Year ending 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it.

Before the end of December 2009, the taxpayer purchased irrigation equipment. The taxpayer is eligible to claim deductions under Division 328 of the ITAA 1997 as a small business entity.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 40-25 ,
Income Tax Assessment Act 1997 Section 40-50,
Income Tax Assessment Act 1997 Section 40-515 ,
Income Tax Assessment Act 1997 Section 40-520 ,
Income Tax Assessment Act 1997 Section 41-10 and
Income Tax Assessment Act 1997 Subdivision 328-D.

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. Section 41-10 states that, to be eligible for the tax break, a capital allowance deduction must be available under section 40-25 and that subdivision 328-D should be disregarded for the purposes of determining entitlement.

Section 40-50 states that you cannot deduct an amount under any provision in Subdivision 40-B if a deduction is available under Subdivision 40-F. In the present case, eligibility exists to a deduction under Subdivision 40-F. As no deduction is available under Subdivision 40-B, the requirements of paragraph 41-10(1)(b) are not met.

Detailed reasoning

The Small Business and General Business Tax Break is available for new assets, as well as for new investment in existing eligible assets, for which a deduction is available under Division 40. Section 41-10 specifies the circumstances in which you have entitlement to a deduction for new investment under the tax break. Subsection 41-10(1) states that to be eligible for the tax break, an asset must be a tangible, depreciating asset for which a capital allowance deduction is available under section 40-25.

There are several exceptions to that rule listed in sub-section 41-10(3), the effect of those exceptions being to make eligible for the tax break assets which would otherwise be excluded. Paragraph 41-10(3)(b) states that Subdivision 328-D (capital allowance deductions for small business entities) should be disregarded for the purposes of determining entitlement under section 41-10. As a consequence of disregarding Subdivision 328-D, the entitlement to a deduction falls for consideration under Division 40.

Section 40-25 appears in Subdivision 40-B. Section 40-50 states that you cannot deduct an amount under any provision in Subdivision 40-B in respect of a depreciating asset if a deduction is available under Subdivision 40-F.

Subdivision 40-F covers deductions in respect of primary production depreciating assets. Section 40-515 states that you can deduct amounts in respect of water facilities and horticultural plant. Section 40-520 provides the meaning of a water facility. The definition and accompanying examples show that the meaning would extend to the asset in question. As a consequence, a deduction is available under Subdivision 40-F notwithstanding the fact that deductions were actually claimed under Division 328.

Therefore, as a deduction is available in the present case under Subdivision 40-F, no deduction is available under Subdivision 40-B, as a consequence of the operation of section 40-50. As no deduction is available under Subdivision 40-B, particularly section 40-25, the requirements of paragraph 41-10(1)(b) are not met.

Therefore, no entitlement exists under section 41-10. Accordingly, as the purchase of the equipment does not meet the relevant requirements, it would not qualify for a deduction under the Investment Allowance provisions.