ATO warning on hire-purchase arrangements


Businesses planning to claim bonus 30 percent tax deduction on assets bought under hire-purchase arrangements must sign by June 30

Businesses planning to claim the bonus 30 percent tax deduction on assets bought under hire-purchase arrangements must sign those arrangements by June 30, 2009, the Tax Office advises.

Businesses with a turnover of $2 million per year or more can claim the bonus 30 percent tax deduction if they commit to investing in many new tangible depreciating assets worth $10,000 or more by June 30, 2009. The asset must be in use or installed by June 30, 2010.

The Tax Office says it will take the view that a business commits to investing when it enters into the contract under which it will hold the asset, it starts to construct the asset, or starts to hold it in some other way.

But it will apply a different rule for businesses buying assets under hire-purchase arrangements. It will take the view that a business buying an asset under hire purchase commits to investing when it enters into the hire-purchase arrangement, not when it signs the order contract with a supplier.

"If you are not a small business entity and want to claim the 30 percent tax break, the hire-purchase arrangement must be entered into on or before 30 June 2009. If you miss this investment deadline, you may only be eligible for the tax break at the reduced rate of 10 percent," the Tax Office says.

Small businesses with a turnover of less than $2 million per year can claim a bonus 50 percent tax deduction on many new assets worth $1,000 or more, when the business commits to invest by December 31, 2009.

These businesses must enter into hire purchase arrangements before December 31, 2009 to claim this tax break.

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