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Understanding the Investment Allowance

Understanding the Investment AllowanceSome smart businesses have already taken advantage of the Government’s small business Investment Allowance for eligible vehicle and equipment purchases. Yet the actual details are still rather confusing to many. People are asking, “How do you qualify?” “What equipment does it apply to?” To simplify the legislation and show how easily business operators can benefit, Finlease have prepared an ‘Investment Allowance Guide in Plain English’ which cuts through the jargon and simplifies the details for business owners.

Put simply, the Investment Allowance is an up-front tax deduction on top of the depreciation business owners are currently eligible to claim on a particular vehicle or piece of equipment.

According to Finlease finance broker Mark O’Donoghue, it’s simple to understand once you are aware of the finer details.

“Let’s imagine you want to buy a new $100,000 milling machine and the current depreciation you can claim in the first year is 15 percent. If you’re a small business turning over less than $2 million, you could benefit from an additional 50 percent allowance. So $65,000 would come off your bottom-line profit and reduce your tax bill, it’s that simple.”

To help business owners better understand the legislation, Finlease have prepared a step-by-step guide:

Step one: What companies can benefit?
Small businesses with a turnover under $2 million annually can claim the 50 percent allowance. For businesses turning over more than $2 million, there are two Investment Allowances. If an order is placed by 30 June, you qualify for the 30 percent allowance. If you missed that deadline, there’s still a 10 percent allowance if you place your order by December 31 2009. In both cases, you have 12 months after those respective deadlines to take delivery of the vehicle or equipment and have it installed ready for use.

Step two: What sort of items are we talking about?
Any motor vehicles including trucks, commercials, passenger cars and fleet cars that you’ll use for your business. It also applies to equipment, from cranes to computer hardware, lathes to printing presses. Major upgrades of existing equipment are also included. Basically anything that makes you money can save you money under the allowance.

Step three: How much must you spend?
For small businesses, the purchase amount for vehicles or equipment must be $1000 or more, whilst for larger businesses it must be $10,000 or over. They must be new or demonstrator items, not pre owned or used.

Step four: You’d better step on it, because the deadline is fast approaching.
You have until December 31 2009 to make your purchase or at least place your order. Then what you buy must be installed and ready to use by Dec 31, 2010. If as a larger business, you had secured the 30 percent Investment Allowance by having already ordered before 30 June 2009, you have until 30 June 2010 to take delivery of the vehicles or equipment to retain that 30 percent.

Step five: Make sure you utilise the RIGHT finance product to pay for those assets that had been ordered but not delivered prior to the June 30 or Dec 31, 2009 order deadlines.
These must be funded via Chattel Mortgages and NOT ‘Commercial Hire Purchase’ or a ‘Lease’ otherwise businesses run the very real risk of having those Investment Allowances denied due to the asset being sold to the Financier and not the customer who had placed the initial order.

Recent news reports have suggested that the economy is on the way to recovery, so now would be the perfect time take advantage of the Investment Allowance and equip your business to capitalise on the upswing.

For more information, please visit www.finlease.com.au

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Jessica Stanic

Jessica Stanic

Jessica has a background in both marketing and journalism and is dedicated to making the website the leading online resource for small to medium businesses with ambitions to grow.

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