Budget 08: Businesses face new budget burden with tax changes

By increasing the period for which businesses can claim depreciation on in-house software from 2.5 to four years, the Government is estimated to save a total of $1.3 billion during the next four years.

According to John Brazzale, Partner with accounting firm Pitcher Partners, the restriction does not accurately reflect current IT spending habits, and is unlikely to impact when or how a business acquires new software.

“The move to increase the effective life of computer software is somewhat bewildering,” he said. “In the current environment, the effective life of computer software is much more accurately reflected by 2.5 years than 4 years.”

The Government has also tightened its Fringe Benefits Tax rules for work-related items such as laptop computers and personal digital assistants (PDAs).

Under the new restrictions, an exemption from Fringe Benefits Tax will only apply for items used primarily for work purposes, and the ability for employees to claim depreciation from such items will be removed.

Brazzale described the change as “disappointing and not a positive measure for business”.

While he expects opportunities for flexible working arrangements to remain, the restrictions are likely to place an added administrative burden on businesses, he said.

“One negative of the change is the fact that the concept of a 'used primarily for work purposes' test is a subjective one and one for which there is no clear guidance,” he said.

“This means that employers will inevitably have to undertake more administration and more paperwork to ensure that the test is met and that it has appropriate means of substantiating the use of the exemption.”

“In an environment where governments are supposedly trying to reduce the compliance and administration burden of taxes on business it is disappointing that the proposed amendment is going to cause more administration for businesses,” he said.

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