In 2009 the federal government's Investment Allowances offered businesses a once in 20 year opportunity. So if you ordered a new vehicle or equipment last year, you'll 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 finance broker Finlease pointed 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."
But first the good news. 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 Sept - Nov 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 $2M, there's a 50% Investment Allowance if you'd placed your order by December 31st last year. 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 you can already claim. You have until December 31st 2010 to take delivery of the vehicle or equipment and have it installed ready for use.
Businesses turning over $2M and above have two deadlines to keep in mind. Orders placed before June 30 2009 qualify for the 30% Investment Allowance and they have until June 30 2010 to have the equipment installed and ready for use. Then for orders placed between July 1st and December 31st 2009, the Investment Allowance is 10% and the final deadline for delivery and installation is December 31st 2010.
When it comes to the finance, an 'Equitable Chattel Mortgage' is your 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. Mark O'Donoghue of Finlease pointed out that 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 may have been the time to act on the Investment Allowances, this could be the year to reap the benefits. This article has been prepared by specialist finance broker Finlease, more information can be found at www.finlease.com.au or at www.australia.gov.au/businesstaxbreak.