The Australian government recently announced a new tax break for small businesses that could help defray the cost of acquiring new assets, as well as provide stimulus for growth despite tightening credit markets. The incentive, announced by Treasurer Wayne Swan and Small Business Minister Craig Emerson as part of the federal budget, boosts from 30 per cent to 50 per cent the amount that businesses with incomes under $2 million can deduct on equipment purchases over $1000. These purchases can include IT-related hardware such as desktops, laptops, servers, routers, switches, storage, and other peripherals.
To qualify for the tax break, small businesses need only to invest a minimum of $1,000 per asset, or combine their purchases to meet the minimum threshold. For example, a server purchased for $5,000 is eligible for a $2,500 deduction, in addition to depreciation-related expenses. A business purchasing two Netbooks for $500 each, with the deduction in effect only pays for one.
A few conditions apply to the tax break. First, the business’s annual income must be under $2 million. Businesses earning over this amount can continue to take advantage of the existing tax break of 30 per cent for eligible assets acquired prior to June 30, 2009 and 10 per cent for eligible assets acquired between July 1, 2009 and December 31, 2009.
Second, the purchased equipment must be new. However, in certain cases the tax break can apply to substantial improvements to existing assets, such as upgrades to the office network or new storage devices. Software is not included in the tax break unless it’s bundled with a hardware purchase.
Third, purchases must take place between December 13, 2008 and the end of 2009, and the equipment must be installed by end of 2010.
While the tax break will reduce the Australian government’s overall revenue, it is expected to preserve jobs and encourage growth in a sector of the economy that needs it most during these tough times, making it a great boon for small businesses. It’s also great news for IT hardware vendors and their VARs, who may see a boost in sales after fearing the worst from the global recession.
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