Improving incentive for businesses to invest

Investment in new plant and equipment is essential if Australian business is to keep pace with new technology and remain internationally competitive.

The Government will increase the incentives for Australian business to invest in new plant and equipment by increasing the diminishing value rate for depreciation from 150 per cent to 200 per cent for all eligible assets acquired on or after 10 May 2006.

This will allow businesses to write off the cost of new plant and equipment

more rapidly for tax purposes, reducing the cost of investing in eligible assets over their effective lives.

This measure, which will cost $3.7 billion over the next four years more closely aligns depreciation deductions for tax purposes with the actual decline in the economic value of assets (economic depreciation).

The changes will enhance the effectiveness of the uniform capital allowance regime, which was introduced by the Government in 2001.

The International Comparison of Australia's Taxes found that the rate of depreciation allowances in Australia were generally less favourable than those in comparable OECD countries. This measure will bring Australia more into line with other comparable countries and improve the international competitiveness of Australian business.

Ensuring depreciation for tax purposes aligns with economic depreciation will also assist business keep pace with new technology, enhance productivity and sustain economic growth.