Private ruling: Small Business and General Business tax breaks
Published: March 2013
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Q1: Are you entitled to claim the Small Business and General Business Tax Break under Division 41 of the Income Tax Assessment Act 1997 ? | A1: No


Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 41-10(1) | Income Tax Assessment Act 1997 Paragraph 41-25(1)(a) | Income Tax Assessment Act 1997 Subparagraph 41-25(1)(a)(i) | Income Tax Assessment Act 1997 Subparagraph 41-25(1)(a)(ii) | Income Tax Assessment Act 1997 Subparagraph 41-25(1)(a)(iii) | Income Tax Assessment Act 1997 Section 40-40

Reasons for decision: Summary: The object of Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997) is to provide a temporary business tax break for Australian businesses using assets in Australia, with a view to encouraging business investment and economic activity. Subsection 41-10(1) of the ITAA 1997 states you can deduct an amount for an income year in relation to an asset if: (a) the asset is a depreciating asset, other than an intangible asset; and (b) you can deduct and amount under section 40-25 in relation to the asset for the income year; and (c) the income year is 2008-09, 2009-10, 2010-11 or 2011-12 income year; and (d) the total of the recognised new investment amount for the income year in relation to the asset equals or exceeds the new investment threshold for the income year in relation to the asset. Subsection 41-25(1) of the ITAA 1997 states the investment commitment time for the amount is: (a) if the amount is included in the first element of the asset's cost - the time at which you: (i) enter into a contract under which you hold the asset at that time, or will hold the asset at a later time; or (ii) start to construct the asset; or (iii) start to hold the asset in some other way; or (b) if the amount is included in the second element of the asset's cost - the time at which you enter into the contract, or start construction, for the economic benefit in relation to which the amount becomes, or will become, included in that element under paragraph 40-190(2)(a). Section 40-40 of the ITAA 1997 outlines the meaning of "hold" a depreciating asset. Under item 6 of the table in section 40-40, the hirer of a depreciating asset subject to a hire purchase agreement will be the holder if they: · possess the asset or have a right to do so immediately, and · have a right to become the legal owner and it is reasonable to expect that they will become the legal owner or that the asset will be disposed of for their benefit. In this case, the right of possession and the right to become the depreciating asset's legal owner are rights acquired by you under the hire purchase agreement. Therefore, you became the holder of the depreciating asset under item 6 of the table in section 40-40 when you entered into the hire purchase agreement. By entering into the hire purchase agreement, you entered into a contract under which you hold the asset for the purposes of subparagraph 41-25(1)(a)(i). You may become the legal owner of the asset in the future and, therefore, hold the asset under item 10 of the table in section 40-40, by exercising your right as against the financier to acquire the asset. However, the purchase order (before 31 December 2009) is not the contract under which you hold the asset at that time. Your right to become the legal owner at that time is not a right exercised under the purchase order and you do not become the legal owner of the asset at that time under the purchase order. Therefore, the purchase order placed with the supplier before 31 December 2009 is not a contract under which you hold the depreciating asset or will hold at a later time. You did not construct the asset (subparagraph 41-25(1)(a)(ii)) and, as you entered into a contract under which you hold the asset, you did not start to hold the asset in 'some other way' (subparagraph 41-25(1)(a)(iii)). Only subparagraph 41-25(1)(a)(i) is relevant in this case. Accordingly, the investment commitment time is when you entered into the hire purchase agreement (after 31 December 2009) as that is the time at which you entered into the contract under which you hold the depreciating asset. As the investment commitment time is after 31 December 2009 you are not entitled to the small business and general tax break under Division 41 of the ITAA 1997.

Relevant facts: You purchased a piece of equipment for over $10,000 and used it in your business. | The equipment was ordered before 31 December 2009 and a deposit was paid when the equipment was ordered. | After 31 December 2009 the business took delivery of the equipment and after a trade-in was made, paid the balance on that day. | The business took out a hire purchase loan after 31 December 2009 to pay the balance of the purchase price.