Edited version of private ruling

Authorisation Number: 1011874635481

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Ruling

Subject: Tax break - investment allowance - extension of first use time

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 periods:

1 July 2009 to 30 June 2010.

1 July 2010 to 30 June 2011.

The scheme commences on:

1 July 2009.

Relevant facts and circumstances

You are full-time primary producers.

Before 31 December 2009 you purchased an asset. The asset was to be used in the primary production business. You were told that the asset would be constructed mid to late 2010 which would allow the asset to be installed ready for use before 31 December 2010.

However, due to unseasonable and extreme weather conditions, there were delays in having the asset constructed.

The supplier was unable to complete the work until after 31 December 2010.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 328-110

Income Tax Assessment Act 1997 Division 41

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

Small business tax break

The Tax Laws Amendment (Small Business and General Business Tax Break) Act 2009 received Royal Assent on 22 May 2009. This has been inserted into the ITAA 1997 as Division 41.

Small business entities are able to claim a bonus tax deduction for 50% (small business tax break) for eligible assets costing $1,000 or more (exclusive of GST) that they:

· commit to investing in between 13 December 2008 and 31 December 2009, and

· start to use or have installed ready for use by 31 December 2010.

To qualify for the 50% rate you need to meet the definition of a small business entity in section 328-110 of the ITAA 1997. This generally means that the taxpayer is carrying on a business and has an annual turnover of less than $2 million.

Businesses can commit to investing in an asset by:

· entering into a contract under which they will hold the asset, or

· starting to construct the asset.

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 as the construction of the asset was finished after 31 December 2010.