In the Rudd Government’s most recent economic stimulus package there was an announcement of a 50% Small Business and General Business Tax Break. This is a one off concession that is well worth considering as a tax planning tool, particularly if you are planning on purchasing any large items of plant and equipment such as a computer or a car.

How does it work?

If you are a self-employed carer with turnover less than $2 million (which might be cutting it close for some carers!) you have the opportunity to claim a bonus tax deduction of 50% on new assets costing $1,000 more which are purchased between 13 December 2008 and 31 December 2009,  and installed by 31 December 2010.

Example

Let’s say you purchase a new computer worth $2,000 before 31 December 2009 and you expect it to be used exclusively or predominantly in your day care business. If you use the simplified depreciation rules, you could be entitled to a deduction of $1,300 in the first tax year you started using it..  This is made up of $1,000 (being the 50% tax break) and $300 (depreciation at 15% of the value of your computer). In subsequent years you would still be entitled to claim the balance of depreciation on computer up to the full value of $2,000.

At the end of the day you, if you use your computer 100% for day care, you could be entitled to claim tax deductions of $3,000 over the life of the asset even though you spent only $2,000.

Other special rules to consider:

•  The asset must cost $1,000 or more (excluding any GST you are entitled to claim) for small business taxpayers (For further details on  Small Business Entity concessions and eligibility click here

• The asset must be brand new, or ex-demonstration stock. It is NOT available for second-hand items.

• The asset must be purchased after 13 December 2008 and before 31 December 2009 in order to qualify for the 50% tax break.

• It can apply to Motor Vehicles (up to the Luxury Car Limit of $57,180) purchased, but only if you are using the Log Book or 1/3^rd method to claim your tax deductions. If you are using the cents per kilometre or 12% of cost method you may not be entitled to the 50% rebate.

• If the asset is used partially for business and private purposes you are still entitled to the full 50% bonus deduction as long as the use of the asset will be predominantly for business purposes. You should however confirm with the tax office that your use of a particular asset is in accordance with this requirement.

• The tax break does not apply to capital improvements (such as improvements to your house or buildings).

• If you purchase a computer, you can only claim the capital allowance on the cost of the computer and NOT the software.

• If you plan to lease an asset e.g. a computer through a lease company such as flexi-rent, you are unlikely to be entitled to this 50% allowance, and you should check with the lease company before purchasing to confirm whether or not you are entitled. To play it safe, you should purchase your computer or other asset outright via cash, person loan, credit card, interest free etc. Even if you pay some interest you may be entitled to a tax deduction for the interest you pay to the extent you use the asset for business purposes.

Further information and Frequently Asked Questions on the Investment allowance are available at http://www.treasury.gov.au/content/small_general_business.asp.

DISCLAIMER: the information contained in this fact sheet are general comments only and do not constitute or convey advice perse.  Clients and other individuals should seek their own independent advice from a qualified advisor to ascertain how the taxation law applies in their individual circumstance. The fact sheet is intended to be a helpful guide to clients and is for their private information. The information contained is given in good faith and is believed to be accurate.  However, neither Child Care Accounting nor any of its employees give any warranty of reliability or accuracy nor accept any responsibility in any way including by reason of negligence for errors or omissions herein.