Computer Troubleshooters recommends with the end of the Financial Year 2013/14 fast approaching, now is the time to start planning and implementing any tax time related decisions. The Federal Budget in May 2014 mainly confirmed previously announced tax changes, from an IT perspective however many options remain. Here are our 5 IT Tax Tips from Computer Troubleshooters 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.
- 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 2014/2015 IT outsourcing contract for $500 a month. The $6,000 contract covering 12 months is signed and paid prior to end of June 2014. The business can claim the $6,000 deduction in its 2013/14 tax return.
Deductions for Small Business (turnover under $2M) relating to the depreciation treatment of IT assets has been changed by legislation over the last few years.
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 in previous years presents significant benefits for small businesses in terms of compliance and cash flow.
STOP PRESS – Instant asset write offs reduced to $1,000 from 1 January 2014
Under the current law, a small business can claim an immediate tax deduction for “individual” assets costing less than $6,500 ex GST including individual assets that form part of a set. As part of the changes contained in the “Mining Tax Repeal Bill”, the Government has proposed to reduce the instant asset write-off from $6,500 to $1,000 for “individual” assets “first used or installed ready for use” on or after 1 January 2014. However this legislation is still to be finalized.
So while IT equipment may have an effective life of 4 to 3 years, the deduction for equipment for up to $6,500, can be taken in the year of purchase. So if you purchased a large piece of IT equipment before the end of December 2013 it would be depreciated & therefore fully deductible in the 2013/14 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.
These changes 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 prior to Jan 1st 2014 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 2013/2014 tax year, decreasing tax liability and improving cashflow. If it was after Jan 1st 2014 and the legislation as proposed is passed the deduction would only be $1,000 in 2013/14
3 Cloud Services
Cloud infrastructure offers Small Business the ability to access enterprise grade infrastructure and services on a subscription basis. Small Businesses have the ability to deflect investment in hardware by accessing data centres with centrally maintained equipment and software. Some additional costs may be incurred in data transmission and security as result of moving to the cloud.
While the movement of infrastructure to the Cloud involves significant risk to business continuity if not correctly migrated, managed and supported, it can offer significant cashflow advantages. By using centralized Cloud infrastructure Small Business can “pay by the month” as a business expense, saving significant investment in hardware and allowing scalability of solutions in the future.
Microsoft Office 365 is a subscription based Cloud alternative for Microsoft’s range of Office products including Outlook, Exchange, Word, Excel, & Powerpoint. You can pay a monthly or yearly subscription to use their software and associated cloud based storage, interconnection & provisioning. If you would like to know more ask us we can help you understand, plan, migrate and manage these services for you.
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 has decided to use a hosted services for it server. When the services are migrated to the data centre is saves an upfront investment of $3,000 (also losing the depreciation benefits), however they incur additional charges for hosting, data transmission and support of $150 per month. Each monthly payment would be regarded as a monthly deductible expense in the 2013/2014 tax year.
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 2013/14 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 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 2013/14 tax liability by $6,000 by prepaying the managed services contract for 2014/15. If they upgraded their hardware prior to January 1st 2014 they can deduct the full $5,000 investment from their 2013/14 year. This strategy would reduce taxable income by $11,000 for the 2013/14 tax year, while 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 your 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 your 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 would 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.
JUST ASK US HOW?
For more information call 1300 282878 and input your postcode to be connected to your nearest Computer Troubleshooters location. Or visit ComputerTroubleshooters.com.au
Computer Troubleshooters – Australia’s largest IT support franchise network.