Intangible asset exclusion from investment allowance doesn't make for a clever country

21 May 2009

While the bonus tax deduction for investment in capital items will be welcomed by some small businesses, the focus on tangible assets does not recognise investment in 'smart' assets according to a respected accounting and advisory firm.

Marc Peskett, partner of Melbourne based MPR Group, says the non-inclusion of intangible assets such as software or other intellectual property, which helps improve efficiency and productivity, is not a clever move by the government.

"Overlooking intangible assets discriminates against certain types of innovative businesses not able to reap the benefits of the deduction," Mr Peskett says.

"This includes small businesses reliant on software for the delivery of services and the software vendors themselves.

"This is yet another example of policy made without reference to our unlisted company sector where high-growth businesses rely on innovation rather than a new computer or car to build their business."

To access the deduction businesses need to be in a position to invest in the asset in calendar year 2009, and claim the deduction at a later date, when the company tax return has been lodged. 

Mr Peskett says this won't assist high growth businesses in this tough economic climate, where managing cash flow and raising finance is extremely difficult.  

"The allowance also does not directly benefit businesses using lease arrangements as a solution to cash flow challenges, as the lessor is entitled to the deduction, not the business leasing the asset," Mr Peskett says.

"Further to this, where small businesses may be entitled to a 50 percent deduction on any asset valued more than $1,000, if the lessor is a large business eligible for the deduction, they are only entitled to 10 percent or 30 percent on assets valued in excess of $10,000. 

"This reduces the benefit the small business derives, and then only if the lessor passes the deduction on through reduced repayments.

"Tax saved on the investment may also eventually be recouped when distributions are made to shareholders, so rather then being a 'tax break' it's effectively a deferral."

Marc Peskett can be contacted for comment on 03 9869 5900.
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