Investment Allowance update

In 2009, the federal government’s Investment Allowances offered businesses a once-in-20-year opportunity. Finance brokerage firm Finlease advises that businesses that have ordered a new vehicle or equipment last year will need to have it installed and ready for use by the relevant deadline this year to reap the rewards.

Meeting the deadline is one thing, choosing the right finance structure is equally important, as Mark O’Donoghue, principal of Finlease, points out: “You must fund your purchase in the right manner. Unfortunately, come tax time, a few ill-advised companies may be disappointed to find that the finance structure they had chosen means that their Investment Allowance claim could be disallowed.”

Small businesses are a lot more optimistic now than when the Investment Allowances were first announced early last year. Right now, there are many encouraging signs coming through with the latest ANZ jobs data, showing that employment rose by 99,500 for the September to November period last year. House building increased in December, the sixth consecutive month of positive growth. So, many smarter businesses are thinking seriously about following through with their equipment purchases sooner rather than later to meet the anticipated demand for the products or services.

For businesses turning over below $2 million, there’s a 50% Investment Allowance if orders were placed by 31 December 2009. The allowances apply to new and demonstrator vehicles and equipment, even major rebuilds of existing equipment. This is a one-off tax deduction on top of what can normally be claimed. Businesses have until 31 December 2010 to take delivery of the vehicle or equipment and have it installed ready for use.

Businesses turning over $2 million and above have two deadlines to keep in mind. Orders placed before 30 June 2009 qualify for the 30% Investment Allowance and they have until 30 June 2010 to have the equipment installed and ready for use. Then for orders placed between 1 July and 31 December 2009, the Investment Allowance is 10%, with the final deadline for delivery and installation being 31 December 2010.

O’Donoghue advises that, when it comes to the finance, an ‘equitable chattel mortgage’ is the only real option as “it means that you are the owner of the equipment from day one. Yet even then, it’s worth looking closely at the details of the finance agreement, because certain finance structures may not qualify. If you fund your purchase with a lease or commercial hire purchase, you run the risk of having your Investment Allowance denied.

“If you have already paid cash for your equipment purchase, you may also like to consider a sale and refinance option. This can free up working capital for immediate needs and lets you spread repayments to optimise cashflow.”

So while 2009 was the time to act on the Investment Allowances, 2010 is the year to reap the benefits.

More information can be found at www.finlease.com.au or at www.australia.gov.au/businesstaxbreak.