How the Governments Stimulus Package can assist your small business

[peppie]

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KRW Finance, post: 7739 wrote:

Any business that turns over less than $2M qualifies for the now 50% tax break – provided you are making a profit. Ie. the tax break cannot be used to increase losses

My advise from my accountant is that the “tax break” is in effect a one off addition to your depreciation for the qualifying items you purchase and WOULD therefore be able to be added to accumulative losses.

So can you qualify your statement with a definite reference?

[Content Writer Micky]

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Hi, I’m very aware of this incentive, and our own accountant reminded us of this just today.

Our only problem is – we don’t actually NEED anything new for our home-based business. This really annoys me, I want to take advantage of this very attractive tax break!

Unfortunately you can’t use it for software because that’s not considered a ‘tangible’ asset. And I can’t think of any other tangible assets (besides cars and computer/office equipment) over $1000 that I need/could really use for my business.

I’m almost hoping my computer will die before the end of this year… NOT! (I hope I haven’t jinxed it!) Let’s put that another way – I’m hoping if my computer will decide to give up within the next year or so, it will do so, or give serious warnings, before December 31st so I can quickly go out, stimulate the economy and claim my tax break!

Micky

[Dardee]

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Avatar Bookkeeping, post: 7734 wrote:

Thanks for this information, its been very helpful.

Can you please tell me if this 30% will also apply to items that have been hired rathered than purchased. I know that for taxation purposes, hired equipment is classified as a purchase via loan so that depreciation can be claimed for. Will the same apply to this 30%?

Are you referring to a hire purchase agreement? If so, then you are correct saying that it does allow a fixed asset to be depreciated. This transaction qualifies for the now 50%.

If you are just talking about a straight hire agreement then there is no depreciation on the item as it is not owned, it is a form of rental. In this case the total cost of the hire is claimed as a tax deduction. This transaction would not qualify for the 50%.

[Renee Barber]

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OK, now I’m annoyed! I didn’t realise that you couldn’t use it for software! Of course I needed CS4 anyway, but still …

[peppie]

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Renee, in a similar manner to my post earlier this afternoon I can’t see why software would NOT qualify for the rebate.

As I said, my accountant has told me that this “Tax Rebate” is actually an add on to your normal depreciation. In that sense, if you purchase a capital item (anything used in the generation of an income more than (if I remember rightly) $300 worth) then it becomes a depreciable item, the depreciation of which is added to your annual profit and loss statement.

I cannot find just now where it was said here that software does not count in this “Rebate”, but as far as my information is concerned software is every bit a capital expense as any computer. And all the information I read is talking about capital expenditure items over $1000. So I don’t see the problem.

So far I only hear opinions, I would like to see anyone come up with some definite references instead.

[Japh]

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I finally found a more official link on this info:
http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/00175431.htm

Hopefully that will help clear up a few things for people. I’ll be calling my tax man about this tomorrow to work out whether I’m best off doing it before or after the end of June…

[Content Writer Micky]

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peppie, post: 7764 wrote:

I cannot find just now where it was said here that software does not count in this “Rebate”, but as far as my information is concerned software is every bit a capital expense as any computer. And all the information I read is talking about capital expenditure items over $1000. So I don’t see the problem.

So far I only hear opinions, I would like to see anyone come up with some definite references instead.

I had followed a link in one of the posts above and found this FAQ document issued by the ATO about this tax break:

http://www.krw.com.au/static/TaxBreak_2009_FAQV2.pdf

Let me quote Question 16 on page 6 of the document:

Question 16 — Is software eligible?

33. Software is an intangible asset. The Tax Break is only available for tangible assets, hence software is not eligible. Previous investment allowances also excluded intangible assets.

So I thought it safe to assume, and post in my earlier post, that you couldn’t use it for software.

Hope this helps.

[peppie]

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Thank you Micky for the reference.

However, despite what question 16 says, I also notice that question 12 says,

“The Tax Break is available for new tangible, depreciating assets for which a deduction is available under Subdivision 40-B of the ITAA 1997 and new investment in existing assets.”

Now when software costs more than $1000 AND is a significant part of your means of generating income, I would call that a tangible asset. And that is the way it has always been regarded in relation to what is defined as a depreciable asset.

I also notice in regard to my other question about whether you can claim the rebate if you are running at a loss, question 4,,,

“The Tax Break provides a bonus tax deduction – it is not a rebate or a refundable tax offset. To the extent that you are in a tax loss situation for the income year that you claim the Tax Break, the bonus deduction will form part of that loss.”

Therefore it CAN form part of an accumulative tax loss, you do not need to be making a profit.

[Content Writer Micky]

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So there may be hope yet for those of us who would like to use it for software? That would be great.

I’m not sure my accountant is aware that the ATO regards software “that is a significant part of your means of generating income” as a tangible asset, like you say. Are you, or is someone else, able to point to me to something official that explains that a bit more?

Thanks,
Micky

[peppie]

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I cannot directly and completely answer that, accept to say that I had always operated on the understanding (supported by advice of various accountants) that for a item purchased in the course of your business to be a depreciable asset it would need to be considered a capital expense. Or in other words, an item directly used as a means of generating income.

Now Renee mentioned Adobe CS4, that suite of programs can cost you anything up to about $5000 depending on your needs. If you are in the business of internet/website/graphic design or as I am video production of all sorts then your work is dependent upon that software. Therefore I call that a tangible asset of your business. After all, you will have a set of data DVDs in your hand that cost you a lot of money.

Tax law also requires you to consider any capital expense as a depreciable item anyway and as such would be depreciated at say 25 or 30% per year, because it has a usable life . The rebate simple allows you to add another 50% in the first year.

I can understand some software not being anything more than a maintenance item, but I can’t see how ALL software can be classed as not being a tangible asset or capital expense.

[peppie]

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Thank you Andrew.

Well all I can say is bah humbug. It seems to me the government is using a back door loop hole of it’s own, they have in effect changed their own rules maybe to get out of paying for some things while seeming to give us the world!

But as you say, software being what it is has a very limited life and could be written off very quickly. Pity we can only get 100% deduction and not 150%!!!

The vers 3 document you mention does add a bit to question 9 when it says “The usual rules regarding the carrying forward of tax losses will apply”. So at least it is clear that you do not need to be making a profit.

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