Accelerated depreciation in 2008-09

At the height of the GFC, the Govt provided a bonus of 50% depreciation in addition to the normal depreciation of assets acquired by small business (less than $2m turnover).

I have a trust with ABN and it has an IP with more to be acquired in future following a strategy of revalue/refinance Buy-and-hold. I checked with the tax office and they advised that the trust is eligible for the 50% depreciation bonus if the IP is not a passive investment. Apparently, under self-assessment the officer advised that the 50% applies if the business is managed actively and not passively. I reckon that the IP is an active business seeing that I self-manage (no PM), maintain/repair the IP and do all the back room work (design drawings and application for modifications) for it to enhance it for revalue/refinance.

Should I use the 50 % accelerated depreciation for a new car acquired in the trust? Is there anyone with a similar situation of having bought a new car for operation and hence tax depreciation in the trust? The normal operating life for a car is 6.5 years (15.4% per annum) and if the bonus applies, becomes 65.4% depreciation in the first year.
 
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There are several examples of the ATO storngly resisting the rental of residential property being described as a business. With one property, it's very unlikely, but of course you could always try...

That said, if you are successful in claiming to be running a business, you may get caught by the non-commercial losses rules!
 
My gut feeling is that you will be hard pressed to claim that you are running a Business if the Trust has only one IP. It could be different if you were holding several more, but I am not an accountant, and I would strongly suggest that you speak to your accountant on this issue.
 
The investment allowance is not accelerated depreciation. The deduction does not depreciate the asset at all. Therefore you depreciate as per normal and in addition you claim 50% off your taxable income for the investment allowance (the 50% that is deductible is the asset only, so you cannot claim this on govt charges like on road costs or GST).

Be sure if you finance the asset, do not Lease the asset, as under Lease arrangements the Lease is the property of the financiers and you will not be eligible for the investment allowance.

Chattel Mortgage or Hire Purchase are the way to go. Chattel Mortgage is probably more ideal if you are registered for GST and are able to claim the GST back.
 
The investment allowance is not accelerated depreciation. The deduction does not depreciate the asset at all. Therefore you depreciate as per normal and in addition you claim 50% off your taxable income for the investment allowance (the 50% that is deductible is the asset only, so you cannot claim this on govt charges like on road costs or GST).

Be sure if you finance the asset, do not Lease the asset, as under Lease arrangements the Lease is the property of the financiers and you will not be eligible for the investment allowance.

Chattel Mortgage or Hire Purchase are the way to go. Chattel Mortgage is probably more ideal if you are registered for GST and are able to claim the GST back.

Cales405

Yes, you are right, the 2009 govt initiative is a bonus 50% depreciation in addition to the normal 100% depreciation over time of the asset.

No complication as the acquisition process did not use leasing. It was funded with revalue/refinance process from my other IPs, then I lend money at commercial rate to Trust to purchase new car with cash.

Thanks to other forumers' contributions.

Jonathon commented:

There are several examples of the ATO storngly resisting the rental of residential property being described as a business. With one property, it's very unlikely, but of course you could always try...

That said, if you are successful in claiming to be running a business, you may get caught by the non-commercial losses rules!


I realise the ATO almost routinely characterise a residential IP as a passive investment. However, if the criteria for a small business rests with verification of an active investment, then my situation should speak for itself. My 'small business' of one IP (currently) is profitable year in year out compared to many other 'small businesses'. However, I have asked my accountant to sort out about the status of the Trust and perhaps the accountant may get a clearance from the ATO.

As mentioned above, the Trust is profitable year in year out. The 'non-commercial losses' possibility will happen to my Trust if the 50% bonus is applied to the 2009 tax returns. If the ATO objects to the loss happening, it will be objecting to the 'loss' situation happening because of a govt policy and not because of any manipulation by the tax payer! It is a situation funded by the govt to bring forward investments in business assets to buttress the economy during the GFC. Nothing new there that the ATO was not party to during the policy development process. I do not think the ATO will want to object to the 'non-commercial loss' on the basis of a govt policy.
 
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The vehicle must be for > 50% business use.
How on earth are you going to run a log book that has 50%+ of the kms to your IP?

Gools
 
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