"As long as the business owner is confident about future demand for its goods or services, now is a good time to lock in investment plans and purchase new equipment or update existing equipment,” Mr Watson says.
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The temporary investment allowance was announced on December 12 as part of recent measures to stimulate the slowing economy.
"The 10 per cent investment allowance, in the form of an additional tax deduction, provides the purchaser of new assets with an upfront additional tax deduction of 10pc of the asset cost in addition to the capital allowance (depreciation).
"The investment allowance is available until June 30, 2009, for assets costing $10,000 or more and in place by June 30, 2010.”
A similar scheme was introduced by the Federal Government back in 1993 and ran for about two years. The Rudd Government has estimated the new allowance will cost about $1.6 billion.
"Investment allowances have proven to be an extremely tax-effective means of lifting and bringing forward investment spending across the Australian economy,” says the Commonwealth Bank’s chief economist, Michael Workman.
“Higher investment lifts growth, productivity and profitability, providing long term benefits to Australia’s economic and social infrastructure," he says.
"In addition, the cost of equipment is expected to drop given lower demand over the past year and a resulting surplus of stock.
"The 1993 investment allowance came at a time when Australia was recovering from recession and was an attempt to boost capital investment and assist the recovery, and the Government’s latest move is also aimed at lifting economic activity and supporting jobs."
