The Australian Information Industry Association (AIIA) today expressed concern at the omission of software and related services from the Draft Investment Allowance Tax Break Initiative announced by the Australian Government on 3 February 2009.
“As an initiative designed to spur productivity and lessen the impact of the economic downturn on Australian businesses, the omission of software from tax break incentives is serious oversight,” said AIIA CEO Ian Birks.
“Technology is acknowledged as a key driver of productivity in this country, and in the past the Australian Government has identified technological innovation as the major driver of long term productivity. Software integral to this process, and it should not be ignored in incentive schemes designed to stimulate activity in these areas.”
The exclusion of software and related services will decrease the attractiveness of investment in computer systems, and effectively nullify many of the potential productivity benefits the tax break is seeking to drive.
“This provision draws an arbitrary line between ‘tangible’ assets such as hardware and ‘intangible’ assets such as software and services. The value of investment in these systems is in the whole, not the parts, and any incentive scheme must recognise that,” Mr Birks said.
Computer systems are frequently purchased with both embedded software and related services attached to their supply; services alone often comprise the major component of any systems purchase. The administrative burden of apportioning the costs between these areas will turn many investors away from accessing the tax breaks and act as a disincentive to technology investment.
Further, software is already treated as an asset by the Government for the purposes of depreciation and work related expenses. There is no supportable public policy reason for excluding software and services from the tax break provisions, other than modelling those provisions after the capital allowance deduction scheme.
“Given that the tax break initiative is a temporary proposal, AIIA urges the Government to consider adopting a simple tax incentive model for computer systems, such as 150 per cent tax deduction on the total system investment,” concluded Mr Birks.
“This would act as a genuine incentive for investment, and provide for both the productivity returns and business stimulus that Government is seeking through this initiative.”
A 150 per cent tax deduction against the total system investment is a viable and realistic proposal given the clear benefits of technology investment to productivity across all business sectors, and the fact that the current draft of the tax break initiative proposes the possibility that the taxpayer may be able to claim up to 130 per cent of the tangible asset’s value – excluding software.
The provisions are outlined in the Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009 (Exposure Draft).