The good news about the government's new 50% tax break is that it doesn't only apply to vehicles. Find out how it could save you thousands on PCS, servers, laptops, phones, and network hardware and storage.
Thinking about buying a shiny new server or a pile of PCs for your small business? Perhaps you've been considering rolling out smartphones to your sales team? Or maybe it's time to upgrade your ageing network infrastructure? If so, now could be just the time to make that substantial IT investment in order to take advantage of the federal government's new and improved tax break for small businesses.
What is the new tax break?
In the recent budget, the government raised the Small Business and General Business Tax Break from 30 percent to a whopping 50 percent. "The increased Tax Break provides small businesses with an even greater incentive to invest in new capital items," says the media release issued jointly by the Treasurer, Wayne Swan, and the Minister for Small Business, Dr Craig Emerson.
The new tax break means a small business could buy a new ute costing $30,000, for example, and then claim a substantial $15,000 deduction - in addition to the usual depreciation - come tax time.
What IT equipment does this apply to?
However, it doesn't only apply to vehicles, as is commonly thought; it applies to any "tangible assets" costing $1,000 or more that would normally be eligible for depreciation under Subdivision 40 B of the ITAA 1997. Crucially, this includes IT hardware. This means PCs, servers, laptops, smartphones, network hardware, storage, backup and any other hardware is eligible for the tax break.
According to Geoff Phillips, director of consultancy firm Phillips IT, the tax break gives the perfect opportunity for small businesses to update aging equipment that was due to be replaced in the next couple of years.
"If small businesses are planning on replacing something anyway - a few old PCs or if the server requires an upgrade - the tax break makes it worth pushing it forward rather than waiting."
How do I qualify?
There are a few conditions that apply to the tax break. The first is that you qualify as a 'small business entity', which generally means having a turnover of less than $2 million per year.
Does the tax break apply to upgrades?
The purchased equipment must also be new, although the tax break does apply to substantial improvements to existing assets, such as upgrading your office network or buying new blades to add to your server farm.
When must my purchase take place?
The purchase must take place between 13 December 2008 and the end of this calendar year, and the equipment must be installed by 31 December 2010. It's also worth noting that you can amalgamate multiple similar sub-$1,000 items into a single purchase in order to reach the $1,000 threshold, such as multiple BlackBerrys or flat panel monitors.
What about software?
This is all good news if you're considering a hardware investment, although it doesn't cover software or cloud computing services, which is unfortunate given the current climate says Neil McMurchy, research director at analyst firm, Gartner.
"Small businesses should be focussing on things like CRM and keeping customer information up to date to make sure they're really engaged with their existing customers as well as marketing to new prospects. But that's all primarily software," he says. "No silver bullets here, unfortunately."
What about software purchased with a new PC or laptop?
Even though the tax break doesn't explicitly cover software or outsourced services like cloud computing, it doesn't mean you can't acquire new OEM software bundled in with a hardware purchase. If you're considering upgrading your operating system or Office software, or even adding some productivity software, it can often be bundled with a new PC or laptop purchase. For example, a Dell Vostro 420 small business PC can be upgraded from Microsoft Works 9.0 to Microsoft Office 2007 Professional for an additional $488.40, which compares favourably to buying a retail copy of Office 2007 Professional, which will set you back $771.82. This way you can not only upgrade your Office software at a discount, but also claim 50 percent on the whole purchase as a deduction through the tax break.
There's already evidence that many small businesses are jumping on board with the tax break. "Sales generally accounts for maybe 10 percent of total revenue," says Michael Zagami, director of Synapse IT Consultants. "But this last quarter it has blown out to something nearing 30 percent or more." Now's the perfect time to take advantage of the tax break for your small business, not only to reduce your tax bill for the year, but also to improve productivity by upgrading your IT hardware at the same time.