IT services franchise group Computer Troubleshooters offers IT tax tips
As the end of the Financial Year 2009/10 approaches businesses are starting to think of ways of ensuring their business is tax effective, so now is the time to start planning and implementing.
The recent Federal Budget in May 2010 held few new advantages for this financial year from an IT perspective, however many options remain. The following is IT services franchise group, Computer Troubleshooters ’, six IT tax tips a business might consider with advice from their tax advisor.
Prepayment of IT Services
For Small Businesses turning over less than $2 million a year prepayment of the following years IT services is a great way of tax effectively managing future IT costs and having a complex area of business effectively outsourced to an expert.
A prepayment is not apportioned, but allowed in full as a deduction in the year in which it is incurred if all services in respect of the prepayment are provided with 13 months of incurring the expenditure.
A businesses Computer Troubleshooter IT service franchise can provide prepayment of IT services using either a Managed Services Contract or a Block Time Services Agreement.
- A Managed services Contract has a defined service level and a monthly management component. This allows the network to be proactively managed and serviced like an outsourced IT department.
- A Block Time Services Agreement is an agreement to provide a specific number of hours of services at an agreed rate. This is a responsive contract where a business uses their Computer Troubleshooter IT service franchise as their service provider on a pay for service basis over the year. Generally this must be expended within the 12 month period.
The depreciation rate on IT equipment is quite high due to their low expected life compared to many other depreciable assets. For depreciating IT assets over $300, the effective life is four years and three years for laptop computers. Small businesses using the simplified depreciation rules in many cases can claim an immediate deduction for a depreciating IT asset costing less than $1,000. =
The Federal Budget in May 2010 announced, subject to legislation approval, that in the 2012/13 tax year this instant write off for small business will be increased to $5,000 which will save on depreciation calculations and improve cash flow.
However, in the meantime the existing rules apply, which means while equipment may last beyond it depreciated life a business may no longer have depreciation tax benefits.
So if a business upgrades their IT equipment they could be experiencing the benefits of the latest technology tax effectively with a lower downtime risk and better running costs.
Example - A small business has a fully depreciated server which is five years old and expensive to maintain with a high risk of failure. It replaces the server with a new one purchased and installed for $3,000 and depreciates the equipment on an ongoing basis. Depreciating the $3,000 over the life of the asset moves some expenses from cash to non-cash and reduces business continuity risk.
Education Tax Refund
The Federal Government’s education tax rebate for primary and secondary students has continued for this tax year with the amounts eligible indexed from last year.
Under the proposal, eligible tax payers will be able to claim 50% for costs up to $780 for primary school students (i.e. a rebate of up to $390), and 50% for costs up to $1,558 for secondary school students (i.e. a rebate of up to $779).
- To be eligible, the taxpayer must receive Family Tax Benefit (‘FTB’) Part ‘A’ or the child receives certain payments or allowances such as Youth Allowance, ABSTUDY or Disability Support Pension.
Example – A family receives Family Tax Benefit Part ‘A” and have 2 children in school one in primary, the other in secondary. They purchase a $2,000 home computer for use by the children and pay $60 a month for ADSL. Total spending of $2,720 on IT for the students is incurred before end of June 2010. In their 2009/10 tax return they claim $780 for the primary student and $1,558 for the secondary student. This equates to a rebate of $390 plus $779, so the rebate of $1,169 will be included in their 2009/10 tax return.
Home Computer Services
If a person has used Computer Troubleshooters’ IT services for servicing a computer that has been used for deriving income or managing tax affairs, a proportion of the amount may be claimed as a deduction for tax purposes. IT costs such as internet access, printer consumables, depreciation, and computer security subscriptions may be proportionally deductible in the same circumstance.
Like all personal tax deductions the computer owner would need to provide proof of the expense and verify the proportion of the cost that is deductible.
Example - A home user who uses their home computer for managing their tax and financial affairs has previously verified with their tax consultant that 30% of the costs associated with the computer are tax deductible. The home user has used the IT services of a Computer Troubleshooters franchise during the year and spent $300 in repairing the computer and has a tax invoice and receipt. The owner can include the $300 in their computer running expenses and gain a $90 deduction for the costs (30%) in their 2009/10 tax return.
Small Business and General Business Tax Break
Introduced as an economic stimulus during the global economic crisis, small businesses turning over less than $2 million a year, who ordered new tangible equipment investments of more than $1,000 were eligible for the tax rebate to claim a bonus deduction of 50%. The deduction was on top of the usual capital allowance deduction (i.e. depreciation). Unless action was taken before December 2009 this bonus is no longer applicable.
However, if a business committed to investing before the end of December 2009, they must you must have it installed ready for use by the end of June 2010, for the deduction to be claimed in the 2009/10 tax year.
Example - A small business committed to buying and installing a $5,000 computer before the end of December 2009, they install in May 2010 so they can claim an additional $2,500 deduction (ie, 50%) in their 2009/10 tax return.
Get Tax Advice and Make a Plan
Often businesses wait until the end of the financial year to think about tax. This year Computer Troubleshooters recommend being proactive and planning tax outcomes in advance to take advantage of tax incentives and ensure IT is up to speed.
Businesses should talk to their tax advisor and their local Computer Troubleshoooters IT services franchise to find a tax effective IT plan for their individual circumstances.
Example - A small business turning over less than $2 million a year decides to develop an IT plan, with its tax advisor they determine to bring forward a planned $10,000 total network upgrade and appoint Computer Troubleshooters as their outsourced IT department for next year for $6,000. The business is able to reduce the 2009/10 tax liability by $6,000 by prepaying the managed services contract for 2010/11 and gaining depreciation benefits from the date of installation. Giving the business a financial boost for the 2009/10, but also having upgraded the IT infrastructure and outsourced the IT management they have reduced business continuity uncertainty and improved efficiency.
All advice contained in this communication is of a general nature and should not be relied on as a reliable source for tax advice. The IT tax tips contained in this document were regarded as correct at the time of writing, changes to legislation or proposed legislation may alter these tips. Computer Troubleshooters recommend contacting the Australia Tax Office, a professional advisor, or a registered tax agent for advice in respect of ther personal or business situation.