The federal government is planning to reap $420 million in extra revenue by slowing down the rate at which Australian businesses can claim the depreciation of their software assets.
The new tax treatment measure, unveiled in today’s mid-year economic and fiscal outlook (MYEFO), will apply to all businesses with a turnover above $2 million.
It will see the statutory period over which businesses calculate the depreciation of in-house software - and claim the value against their tax liability - extended from four years to five.
For businesses, it will mean the value they can claim against their tax bill will fall on a year to year basis.
But for Government, the subsequent increase in tax revenue will return an extra $140 million to Commonwealth coffers in 2016-17 and another $280 million in 2017-18.
The changes will apply to internal-use software assets – such as ERP and management tools rather than revenue generating customer systems – from 1 July 2015. It will only apply to software acquired or developed for use by the taxpaying company itself.
The changes will be more significant to the timing of Government tax-generated revenue, not the overall size of the long-term tax bill paid by Australian businesses, associate professor of Sydney University’s business school John Taylor told iTnews.
“In the early years at least, this should increase the taxable income of companies,” he said.
“But effectively it will just bring that taxation forward to earlier years of the software lifecycle rather than the later years."
It's not the first time the Commonwealth has rejigged the Tax Office's treatment of software depreciation in an effort to boost short-term revenue.
In 2008, the then-Labor Government increased the depreciation period from 2.5 years to the current four years, a measure it hoped would bring in an extra $1.3 billion until 2012.