BDO comments on Labor’s Investment Guarantee proposal

29 March 2018

Labor’s "Australian investment guarantee (AIG)", proposal will allow businesses to immediately deduct 20 % of investment in eligible depreciable assets, except structures and buildings. Eligible assets include tangible machinery, plant and equipment, trucks and utes for tradies as well as intangible investments in knowledge assets such as patents and copyrights.

BDO Tax Partner, Mark Molesworth, today reviewed the proposal and commented:

“The policy brings forward deductions to an earlier year, but does not give rise to additional deductions. As always, the issues are likely to be on the fringe where taxpayers will have to decide whether their asset is in or out.”

“There are three examples where issues could arise:

  1. The AIG excludes passenger motor vehicles, but includes utes. The dividing line here will likely suffer from the current technical difficulties at the margins for dual cab utes and utes with a notional carrying capacity of >1tonne, but with accessories fitted that reduce the carrying capacity under 1tonne. So a tradesman who has a >1tonne ute but has fitted it to carry less than this weight could be caught short.

  2. Eligible assets have to be worth at least $20,000. No pooling of the same assets acquired at the same time is allowed. This will potentially lead to difficult discussions about whether the acquisition is of a single ‘system’ or a series of separate assets.
    For example, a solar installation is made up of solar panels, an inverter and a battery. Are these separate assets or a single system asset? The answer depends on whether they are a functional unit of plant. The sun may not shine as brightly on these this type of eligible asset.

  3. Structures and buildings are excluded. This differentiation has to be made at the moment, but there are some anomalies. For example, demountable buildings are usually plant, not structures.

Therefore, mining camps and caravan park demountable buildings may be eligible, where more permanent structures may be excluded. So tax may influence the decision about what type of asset to invest in, not just whether or not to invest.