Tips for end of the Financial Year 2010/11
As the end of the Financial Year 2010/11 approaches we are starting to think of ways of ensuring our business is tax effective, so now is the time to start planning and implementing. The recent Federal Budget in May 2011 held few new advantages for this financial 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 years 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 2011/2012 IT outsourcing contract for $500 a month. The $6,000 contract covering 12 months is signed and paid prior to end of June 2011. The business can claim the $6,000 deduction in its 2010/11 tax return.
The depreciation rate on IT equipment is quite high due to their low expected life compared to many other depreciable assets. For depreciating IT assets over $300, the effective life is 4 years and 3 years for laptop computers. Small Businesses using the simplified depreciation rules in many cases can claim an immediate deduction for a depreciating IT asset costing less than $1,000.
The Federal Budget in May 2010 announced that in the 2012/13 tax year this instant write off for small business will be increased to $5,000 which will save on depreciation calculations and improve cash flow.
However in the meantime the existing rules apply, which means while equipment may last beyond it’s depreciated life you may no longer have depreciation tax benefits.
So, if you upgraded your IT equipment 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 with a new one purchased & installed for $3,000 & depreciates the equipment on an ongoing basis. Depreciating the $3,000 over the life of the asset moves some expenses from cash to non-cash and reducing business continuity risk.
3 Education Tax Refund
The Federal Government’s education tax rebate for primary and secondary students has continued for this tax year with the amounts eligible indexed from last year.
Eligible tax payers will be able to claim 50% for costs up to $794 for primary school students (i.e. a rebate of up to $397), and 50% for costs up to $1,588 for secondary school students (i.e. a rebate of up to $794).
n To be eligible, the taxpayer must receive Family Tax Benefit (‘FTB’) Part ‘A’ or the child receives certain payments or allowances such as Youth Allowance, ABSTUDY or Disability Support Pension
Computer equipment and computer running costs (such as internet service provider fees, laptops, home computers, printers, toner, and stationery) used by students can be claimed. Home Computer Services are also eligible. Make sure you keep receipts and tax invoices for inclusion for the claim.
Example – A family receives Family Tax Benefit Part ‘A” and have 2 children in school one in primary, the other in secondary. They purchase a $2,000 home computer for use by the children and pay $60 a month for ADSL. Total spending of $2,720 on IT for the students is incurred before end of June 2011. In their 2010/11 tax return they claim $780 for the primary student & $1,558 for the secondary student. This equates to a rebate of $390 plus $779, so the rebate of $1,169 will be included in their 2010/11 tax return.
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 2010/11 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 Troubleshoooters 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 bring forward a planned $10,000 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 2010/11 tax liability by $6,000 by prepaying the managed services contract for 2011/12 and gaining depreciation benefits from the date of installation. Giving the business a financial boost for the 2010/11 year, but also having upgraded the IT infrastructure and outsourced the IT management they have reduced business continuity uncertainty and improved efficiency.
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 slowdowns or outages?
- Scan your network for current incursions or issues
- Pinpoint any exposure or risk form hackers, viruses, spyware, spam and even employee sabotage
- 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 disaster that affected your IT systems & 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?
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 propos