The government's Small Business Tax Incentive is available this year and next. Taking advantage of it might not be something you want to put off. While you don't know what profits you might like to reduce next year, you do know what this year's tax bill will look like.
WHAT IS THE INCENTIVE?
Businesses can write off the entire value of new IT hardware or off-the-shelf software against this year's profit instead of depreciating it over three or four years.
The allowance applies to any hardware item that costs less than $20,000 (GST exclusive). There’s no limit to how many times you can claim. You can buy one new laptop or a thousand and claim each one individually.
“The advantage is clear in something like the refresh of a server fleet,” says George Koletti, Principle at the Sydney-based accounting firm Access Professionals. “You can do a full upgrade right now and claim it all in this year’s tax return, but you don’t have to take the cost out of your cashflow. You can finance the investment over a four- or five-year period but get the full amount of relief immediately.”
DO YOU QUALIFY?
- You have to have a turnover under $2 million
- You have to be buying hardware, not software
- You have to have to own (not lease) the hardware
- The hardware has to be first used or installed ready for use in the tax year in which you’re claiming the deduction—you can’t claim something you’ve paid for this year, but that won’t be delivered till next year
The $20,000 limit excludes GST so make sure you’re buying from a GST-registered supplier.
Another potential pitfall, says Koletti, is that the $20,000 ceiling includes the cost of software that is essential for the hardware to operate. If you bought hardware for $19,999 that couldn’t be used without a $200 operating system that wasn’t included in the price, your total cost would be $20,199, which puts it over the threshold.
WHY YOU SHOULD ACT THIS YEAR
“The decision to invest in your technology has to be made either this financial year or at the latest next financial year to avail yourself of this ‘generous’ tax incentive,” says Koletti. “It’s a great tax planning tool for businesses that have, for instance, had a bumper year of profits and need to reduce their current year tax liability while building more capacity to handle growth in the next financial year. It’s all in the timing and timing can vary for every business.”
A QUICK CHECKLIST
Now is the time to audit the technology you’re using, Koletti advises. He suggests his clients look at three things:
- Are there better and more efficient ways to do things that could be enabled by better hardware?
- Are you using technology to manage and market your business as efficiently as possible? Could you get more value out of replacing or upgrading current hardware?
- Is your total cost of ownership too high, i.e. have you got redundant equipment that’s costing more to maintain and keep than it would to replace?