Tricks & Traps

Leasing - the Business Tax Break is afforded to the taxpayer who enjoys the depreciation deduction, which, for equipment, would ordinarily mean the lessee of a luxury car, the lessor of items provided under an operating or finance lease, or the hirer under a hire purchase arrangement or the buyer under an instalment purchase arrangement.

New and used assets - the current incentive is effectively restricted to the cost of acquiring or constructing new assets. The restriction is effected through a requirement that "the first time that you or any other entity have used the asset for any purpose" (other than testing or trialling) occurs during the relevant periods.

If the taxpayer wants to claim the incentive for the cost of making improvements to existing assets, this restriction is not relevant.

Which depreciating assets

Eligible	Not eligible
Tangible, depreciating assets for which a deduction is available under section 40-25 of the ITAA97 such as: machinery equipment cars - except those using the 'cents per kilometre' method (see Note 1) Tangible, depreciating assets used by small business entities Tangible, depreciating assets used in R&D	Intangible assets, such as: computer software intellectual property rights Cars using the 'cents per kilometre' method Land Trading stock Horticultural plants, establishment costs of carbon sinks Capital works - buildings, construction expenditure

 Note 1: the Tax Break is only available up to the car limit ($57,180 for 2008-09).

Mixed, tax-preferred and changed use of assets. The draft legislation contains no explicit rules about pro-rating the Business Tax Break if the asset is used partially for private use. The test is whether the asset was genuinely intended to be used in carrying on a business in Australia, determined once and at the time that the asset was first used or installed ready for use.