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Tax proposal could change Aus hardware lifecycles

Cut to depreciation rates could change the game for hardware buys

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A new review Discussion Paper released yesterday by the Australian Taxation Office's Business Tax Working Group (BTWG) has the potential to change the way Australian IT departments manage their affairs.

The BTWG was formed last year in response to business groups' concerns that Australia's tax regime, and especially the 30% company tax, are not internationally competitive. The Group has therefore compiled the Discussion Paper as a way to float some ideas on how to address the issue.

The thrust of the report is that the Company Tax rate can be cut, but only if other assistance to business is also reduced. Which is where things get tricky for IT departments, because one of the government boosts the report recommends for review is the depreciation rate for business assets.

The current depreciation regime, the report explains, allows for half the value of an asset to be claimed in the first year of its life. Until financial year 2006/2007 only lesser deductions were possible.

The current regime is therefore better for those who buy products like servers and other IT kit, which depreciate rapidly thanks to advances in technology. Indeed, it can be argued that front-ending depreciation of hardware could be a buying cycle accelerant, as earlier and larger depreciation allowances make it easier for end-users to fund purchases.

It's also worth nothing that business software is one of the few non-tangible assets businesses are permitted to depreciate, so any change would mean new accounting treatment for a business' application fleet too.

Whether the changes discussed in the Paper ever come to fruition is, however, doubtful. As a mere Discussion Paper, the document is a long way from becoming policy. Throw in the fact that it has already earned the ire of business groups – as reported in The Australian and by the ABC – and these proposals are probably years away from from becoming law.

Throw in the fact that the Paper also considers cuts to research and development allowances and it's hard to see the IT&T industries being wildly enthusiastic about the ideas it contains.

The Reg has sought comment from industry groups about the Paper, which you can find here (PDF, but with wonky filename extension so you may have to manually open with your preferred reader). ®

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