By Computer Troubleshooters // 6 June 2012 // Related Categories: Tips
The end of the Financial Year 2011/12 is fast approaching, so now is the time to start planning and implementing any tax related decisions. The Federal Budget in May 2012 mainly confirmed previously announced tax changes for next 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 year’s 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.
n 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.
n 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 2012/2013 IT outsourcing contract for $500 a month. The $6,000 contract covering 12 months is signed and paid prior to end of June 2012. The business can claim the $6,000 deduction in its 2011/12 tax return.
There is a major change in the legislation for Small Business (turnover under $2M) relating to the depreciation treatment of assets that will have a major impact on investment decisions prior to June 30.
Small Businesses using the simplified depreciation rules in many cases can claim an immediate deduction for a depreciating IT asset costing less than $6,500. As such, the increase of the threshold to $6,500 from $1,000 presents significant benefits for small businesses in terms of compliance and cash flow.
So while IT equipment may have an effective life of 4 to 3 years, the deduction for equipment for up to $6,500, from July 2012, can be taken in the year of purchase. So if you purchased a large piece of IT equipment in June 2012 it would be depreciated over 4 years, while if you held over the purchase it would be fully deductible for the 2012/13 tax year.
For a business with a turnover above $2m the depreciation rules remain the same with varying rates for asset types depending on the expected asset life.
This increased change in depreciation rules for Small Business means if you upgrade your IT equipment sooner you could be experiencing the benefits of the latest technology tax effectively with a lower downtime risk and better running costs.
Example - 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 after July 1st 2012 with a new one purchased & installed for $3,000 & fully deducts the costs under the instant write-off threshold rule. The full $3,000 would be expensed in their 2012/2013 tax year, decreasing tax liability and improving cashflow
3. 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 2011/12 tax return.
4. 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 Troubleshooters 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 they need to do a planned $5,000 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 2011/12 tax liability by $6,000 by prepaying the managed services contract for 2012/13. But deferring the network upgrade to after June 30th 2012 they can deduct the full $5,000 investment from their 2012/13 year. Giving the business a financial boost for both the 2011/12 & 2012/13 tax years, but still achieving the business goal of upgraded IT infrastructure and outsourcing the IT management
For more information talk to your local Computer Troubleshooters - your Trusted IT Advisor
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.
Audit your Systems
At Computer Troubleshooters we always prefer to manage your IT systems rather than your IT problems.
Are you worried about future problems?
Then get us in to do an Audit so we can review your current situation and recommend courses of action.
We offer Audits in 3 areas – System, Security, & Disaster Recovery.
Here are a few questions you should ask yourself before you decide if you need an expert IT Audit
Are you IT systems older than 3 years?
Has your network been built gradually over time?
Do you think there is a better way to operate?
IT System & Network Audit
- Review your current hardware & licencing
- Report on system performance
- Recommend actions to manage your network to protect & improve performance
Do you wonder if you Network is secure?
Do you have multiple access points to your system?
Have you experienced any system slow downs or outages?
- Scan your network for current incursions or issues
- Pinpoint any exposure or risk form hackers, viruses, spyware, spam and even employee abotage
- Recommend alternatives to improve your network security
Do you have a daily backup routine?
Do you know what will happen to your business if your hard drive were to fail?
Do you know how long your business take to recover from a natural disaster that lost your system & network?
Backup & Disaster Recovery Audit
- Review your current backup routine and test your data can be actually be recovered?
- Review your disaster recovery procedures to ensure business continuity?
- Recommend improved methodology, technology, or routines to enhance business disaster recovery.
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