Can I buy new IT gear and get the small business tax break?

In short, yes – all businesses can claim the special 30% tax break for purchases of IT equipment.

If your turnover is less than $2 million, you must spend at least $1000 on suitable assets to qualify. If your turnover is over $2 million, you need to spend $10,000 to qualify. 

But there is a huge “gotcha” that most IT companies have not yet discovered, and so are not yet telling their clients. As the draft legislation stands this week, software and installation services are not covered by the tax break.

The current ruling is designed to encourage industry investment. However, as Ian Birks, CEO of the Australian Information Industry Association stated recently: “As an initiative designed to spur productivity and lessen the impact of the economic downturn on Australian businesses, the omission of software from tax break incentives is serious oversight.

“Technology is acknowledged as a key driver of productivity in this country, and in the past the Australian Government has identified technological innovation as the major driver of long term productivity. Software is integral to this process, and it should not be ignored in incentive schemes designed to stimulate activity in these areas.”

While the Government already treats software as a depreciable asset and makes it a deductable work related cost, it has followed a model based on provisions for the capital allowance deduction scheme (see Division 40 of the Income Tax Assessment Act 1997), which will not allow for software or services. 

This may have been caused by rushed processes in drafting a quick handout to small business; we can hope for a review in the final version due out late this month.

The exclusion of software and services will make for some interesting debates when hardware is sold with software included in the price, and will certainly lead to an additional administrative load in determining the tax benefit to claim.

I am sure it will also impact on people’s decisions to invest in infrastructure that forms only part of the cost of any implementation, software and services typically making up some 60% to 70% of the total cost of any IT project.

If we are to get the productivity gains this country so badly needs in the SME sector, surely we can all call on the Government to lift its game and ensure that the full cost of implementing IT assets into businesses are covered by this tax break.

The provisions are outlined in the Tax Laws Amendment (Small Business and General Business Tax Break) bill 2009 (exposure draft). 

David Markus is the founder of Melbourne’s IT services company Combo. His focus is on big picture thinking to create value in IT systems for the SME sector.

Click here to read more IT Systems expert advice