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Tax Tips for Australia Small Businesses & Home
Computer Users
Here are our 5 BIG IT Tax Tips -
with end of the Financial Year 2010/11 fast approaching you
need to ensure your business and personal IT positions are
tax effective. The recent Federal Budget in May 2011 held
few new advantages for this financial year from an IT
perspective however many options remain. Here are our 5 IT
Tax Tips you might consider with advice from your tax
advisor:
1
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 your future IT costs
and having a complex area of your 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.
Your Computer Troubleshooter 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 your network to be proactively
managed & 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 you use your Computer Troubleshooter as your service
provider on a pay for service basis over the year.
Generally this must be expended within the 12 month period.
Example
- A Small Business decides to contract Computer
Troubleshooters for it's 2011/2012 IT outsourcing contract
for $500 a month. The $6,000 contract covering 12 months is
signed and paid prior to end of June 2011. The business can
claim the $6,000 deduction in its 2010/11 tax return.
2 Depreciation
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 4 years and 3 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 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's depreciated life
you may no longer have depreciation tax benefits.
So,
if you upgraded your IT equipment you could be experiencing
the benefits of the latest technology tax effectively with a
lower downtime risk and better running costs.
-
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 &
installed for $3,000 & 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 reducing
business continuity risk.
3 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.
Eligible tax payers will be able to claim 50% for costs up
to
$794 for primary school students (i.e. a
rebate of up to $397), and 50% for costs up to
$1,588 for secondary school students (i.e. a
rebate of up to $794).
·
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
Computer equipment and computer running costs (such as
internet service provider fees, laptops, home computers,
printers, toner, and stationery) used by students can be
claimed. Home Computer Services are also eligible.
Make sure you keep receipts and tax invoices for inclusion
for the claim.
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 2011. In
their 2010/11 tax return they claim $780 for the primary
student & $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 2010/11 tax return.
4 Home Computer Services
If you have used Computer Troubleshooters 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 (toner & paper), depreciation,
and computer security subscriptions may be proportionally
deductible in the same circumstance.
Like all
personal tax deductions you 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 & 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
Computer Troubleshooters during the year and spent $300 in
repairing the computer and has a tax invoice & receipt. The
owner can include the $300 in their computer running
expenses & gain a $90 deduction for the costs (30%) in their
2010/11 tax return.
5
Get Tax Advice & Make a Plan
Often we wait until the end of the financial year to think
about tax. This year why not be proactive and plan your tax
outcomes in advance. Why not take advantage of tax
incentives and ensure your IT is up to speed
Talk to your tax advisor and your local Computer
Troubleshoooters to find a tax effective IT plan for your
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 2010/11 tax liability by
$6,000 by prepaying the managed services contract for
2011/12 and gaining depreciation benefits from the date of
installation. Giving the business a financial boost for the
2010/11 year, 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. We
recommend you contact the Australia Tax Office, your
professional advisor or a registered Tax Agent for advice in
respect of your personal or business situation.
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