How does the 50% investment allowance actually work? Is it a 50% refund of the cost of the item, or is it to be claimed as 50% of the cost of the item as a tax deduction?
The investment allowance is an additional tax deduction. It is not a tax rebate. It is, however in addition to the normal depreciation claim to which you are entitled. So if you are eligible for the 50% investment allowance then you receive an additional tax deduction of 50% of the price of the eligible goods purchased.
The real cash value of the investment allowance is the tax deduction multiplied by your relevant marginal tax rate. This is managed inside your income tax return so in most cases will give rise to a reduced amount of tax payable. Where the investment allowance deduction created a loss position for the business, then this loss would be carried forward to be offset against future years’ income.
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
