Published on the 17/12/2014 | Written by Beverley Head
Faced with a budget shortfall the Australian Government is looking to reap an extra $420 million by tinkering with the rate of in-house software depreciation…
As part of its Mid Year Economic and Fiscal Outlook (MYEFO), Treasurer Joe Hockey has announced that; “The Government will increase the period over which capital expenditure on in-house computer software is depreciated from four years to five years. This is estimated to increase revenue by $420 million over the four years to 2017-2018.”
The additional revenues start kicking in in 2016-17 when the Government expects to reap $140 million, and a further $280 million in 2017-18. The change will only affect larger companies with revenues of more than $2 million.
Tax partners in leading accounting firms have however expressed surprise at the initiative and the scale of the revenue boost that the Government was forecasting, especially given the continued adoption of cloud-based software which will not be affected.
Deloitte Private partner Spyros Kotsopolous, said “it strikes me as odd” that the Government would look to lengthen the depreciation period at a time when technology advances were ever faster. He said that businesses which were strapped for cash might not upgrade their information systems as quickly as a result of the changes.
Kotsopolous noted also that the software depreciation schedule would also not apply to those companies which bought cloud-based software-as-a-service.
Grant Wardell-Johnson, head of the Australian tax centre for KPMG said that the Government’s expectations of a $420 million windfall “seems very high to me”, especially since many organisations structured software as research and development projects in order to be able to claim annual deductions.
The MYEFO noted that Government was expecting tax receipts to fall $6.2 billion this year and by almost $32 million over the coming four years. “To try and recover these falling revenues now through new or higher taxes would unquestionably harm the Australian economy,” according to a media release issued by the Treasurer.
However it’s not above trying to claw some extra revenues from business by stretching their in-house software depreciation schedules.
According to Kotsopolous; “I’m not sure it’s a tax on innovation…but we have gone from 2.5 years to four to five. This goes against the grain of software and how it is used.”
