The following is a sample of frequently asked questions on the new investment allowance that Treasury has put on its website:

What does ‘new’ mean?

The tax break will be available for new, tangible depreciating assets or new expenditure on existing assets. ‘New’ refers to assets that have not been used before by anyone, anywhere, except where an asset has only been used for reasonable testing and trialling.

Do cars qualify?

The tax break is available for new, tangible depreciating assets for which a deduction is available under the core provisions of Div.40 or new expenditure on existing assets.

New motor vehicles used for business purposes are an example of the kind of assets that could qualify for the tax break (provided all the criteria are met).

Are demonstrator vehicles new or second hand assets?

Demonstrator vehicles can qualify as ‘new’ assets provided they have only been used for reasonable testing and trialling.

Will assets held under leases qualify?

Provided the asset being held under lease is a new, tangible, depreciating asset, for which a deduction is available under the core provisions of Div.40, then the asset will be eligible for the Tax Break (subject to the other criteria being met).

Div.40 provides a framework for determining who in a leasing arrangement is able to claim depreciation deductions in respect of the asset and hence would be entitled to claim the bonus deduction in a leasing situation.

As is currently the case with capital allowance deductions, how the Tax Break is factored into lease prices will be a matter for commercial negotiations.

Do buildings qualify?

No. The Tax Break will be available for new tangible depreciating assets for which a deduction is available under the core provisions of Div.40 and new expenditure on existing assets.

Capital works covered by Div.43 will not qualify for the Tax Break.

Are primary production assets, depreciated under subdivision 40-F, eligible for the Tax Break?

No. The core provisions of the uniform capital allowance in subdivision 40-B will provide the framework for determining which assets are eligible and who is entitled to claim the bonus deduction.

This means that assets that already receive concessional capital allowance deductions under other subdivisions – such as assets used for primary production depreciated under subdivision 40-F will not qualify for the Tax Break.

Is the Tax Break only available to small business entities?

No – both the 30% and 10% bonus deductions are available to all businesses.

However, small business entities will only need to spend a minimum of $1,000 per asset in order to qualify for the Tax Break.

All other businesses will need to meet a minimum expenditure threshold of $10,000 per asset. These expenditure thresholds apply to both 30% and 10% bonus deductions.

Do small businesses using Div.328 qualify?

Yes. A small business taxpayer who chooses to deduct amounts for depreciating assets under subdivision 328-D will not be ineligible for the Tax Break merely because they make such a choice.

What if I don’t meet the June 2010 installation deadline?

If you acquire or start to hold an eligible asset between 13 December 2008 and the end of June 2009 and miss the end of June 2010 installation deadline, you will miss out on the 30% bonus deduction.

However, provided the asset is installed by the end of December 2010 you will still qualify for the 10% bonus deduction.

Will the tax break be reduced for non-business use?

Unlike deductions under subdivision 40-B, the Tax Break will not be apportioned for any non-business use of the asset.

However, a taxpayer must be able to demonstrate that at the time they started to use the asset or had it installed ready for use, the asset was to be used in Australia and for the principal purpose of carrying on a business.

Will the Tax Break bring forward the deductions I would normally claim over the asset’s effective life or is it on top of these deductions?

The Tax Break will provide a bonus deduction rather than bringing forward normal deductions for an asset’s decline in value. This means that, over time a taxpayer could effectively claim deductions of up to 130% of the asset’s value.

The Tax Break will not impact on balancing adjustment events. For example, the Tax Break will not affect the tax treatment of an asset upon disposal.

Will the car limit apply to the Tax Break?

Under the core provisions of Div.40, luxury cars have their cost reduced to the car limit for the purpose of calculating capital allowance deductions.

As the Tax Break relies on the core provisions of Division 40, the car limit will apply to eligible luxury cars.

This means that a taxpayer who is eligible to claim the Tax Break for a luxury car will have to use the car limit when working out the amount of their deduction.

The car limit for 2008/09 is $57,180 and is indexed annually in line with the index number for the motor vehicle purchase sub-group of the CPI.

This means that, at the 30% rate, the maximum bonus deduction available for a car in 2008/09 is $17,154