PDA

View Full Version : Tax Benefits



moth
13th November 2004, 06:23 PM
I'm currently in the process of upgrading my powerbook and because it's primarily for work, many people have be saying "oh, you can claim that back on tax!" However this comment is very broad. Let's just say I am no accounting genius and have no idea how the tax process works. What exactly can you claim, what percentage would you get back? I've never had to claim anything as big as a notebook and would appreciate it if anyone could shed some light on the situation.

OziMac
13th November 2004, 07:12 PM
Well, essentially if your laptop is purchased for business purposes it is deducted from your taxable income. So in effect you save whatever proprtion of the laptop price at the marginal rate you'd be taxed on. Essentially it means using your before-tax income to pay for your laptop, rather than paying for it after tax.

For example, if you earn $50,000 a year, you're taxed at a marginal rate of 30%. As is, you will pay $11,172 in tax plus $750 for the Medicare levy. So your initial cash position after tax will be $38,078.

Say you buy a $4000 Powerbook - without deduction, your final cash position after tax is $34,078.

Notwithstanding any other deductions, you can deduct the price of the laptop from your taxable income if it is 100% used for business purposes (whatever that means).

Having paid for the Powerbook, your taxable income will be reduced to $46,000. Accordingly, you will only have to pay $9,972 in tax and $690 for Medicare. So your final cash position is $35,388.

In effect, you've made a saving of $1310 - of course, that's not a 'real' saving as you're simply paying less tax, but that's how it works out. And it heavily depends on the marginal rate you get taxed at - the higher your income, the better off you are at the end (at least, in terms of 'saving' money on the laptop.

In addition, if your work offers it, you can salary package it - which means that you are reimbursed for the purchase price, and pay off the GST-free purchase price of the laptop through deductions in your pay packets over a certain period of time. I don't believe salary packaged laptops need specifically to be for work purposes as you are purchasing them through work in any case.

I've heard that even though you can still do this, the ATO probably wants to get rid of it as its yet another means of subverting income tax obligations, which they nearly completely abolished by introducing the Fringe Benefits Tax rate of 48.5%. However, I'm no accountant - you need to get some independent financial advice before you dive in.

moth
13th November 2004, 08:44 PM
Wow! Now I know why i'm in the commercial arts field and not finance. I didn't realise how complex the whole procedure was. I think I should go see my accountant before I make any final decisions. Thanks for your help OziMac.

Jmi
13th November 2004, 09:56 PM
From what info I get from my company accountant, in addition to what OziMac has said, you can further reduce your taxable income each year by the value of the powerbook in its useful life.
Lets say its 3000 in total value and you "say" that it will last you 3 years. Thus each year, you can further reduce your taxable income by 1000 each year. That deduction is claimed under equipment. That is if its 100% used for work. If its 50% used for work, then it will be 500 each year instead.

OziMac
14th November 2004, 08:59 AM
Good point Jmi.

The only thing with depreciation is that the ATO have decreed the useful life of a laptop as two years, so its strictly limited to 50% of the value of the laptop in each of those two years. But again, another useful way of spreading the cost of the laptop through tax.

elvis
14th November 2004, 09:36 AM
The easiest way to claim your IT needs is through leasing:

http://www.rnt-it.com/content/view/18/41/

You don't own the item, so there's no depreciation schedule needed. You get monthly invoices from the leassor which are all tax deductable as businesses expenses, and the lease is typically 24-36 months, which is the standard acceptable life for IT goods.

Lease the item through a small or home business name, or even personally for business-related purposes. All of your monthly lease costs are then simply cliamed in your annual tax return.

Best of all, every 3 years you get to upgrade for the same monthly cost!

OziMac
14th November 2004, 10:32 AM
The only difference with leasing is that although you end up paying off an amount closely proportional to the purchase price of the item, you never own it - cleverly beneficial for the leasing company, but not as great for you unless you are willing to perpetually lease items from them.

On the other hand, if you buy it yourself, it's yours to keep, sell or give away once you've paid it off - which effectively means that you're beter off to the order of the resale price of the laptop when you do.

For example, say a $4000 Powerbook will be worth $2000 in two years - with a lease, you'll have paid the leasing company around $4000-odd but they take the laptop back, unless you're willing to pay the current resale value to them - $2000. But if you buy it yourself or salary package it, once you've paid it off and claimed your two year's worth of depreciation, you keep it and can do with it what you wish - say you sell it for the $2000 that it's worth. That's money in your pocket, not the leasing company's.

I'm a little bit disillusioned with the fact that Apple Australia and the Apple Centres have such a close relationship with Rent Smart and leasing seems to be the financing option they peddle - but I'm glad that places like NextByte, Myer and David Jones now offer proper finance on Apple purchases.

estoyloco
14th November 2004, 12:44 PM
I think the leasing is actually alot more than what you would pay for it outright... closer to 50% more... Someone correct me if im wrong..?? Because they tried to sell me on the upgrade whenever you want point etc.. Leasing is a great thing for some but not for others. Heavily look into the costs over the entire horizon of the lease...

I would definately buy it outright or get a David Jones card and do the 12 months interest free route.

If you are registered for GST you can also claim back (offset against GST payable)

EG: $3958 for 17" powerbook,($3958/1.1) = $359.81 in GST, say in March quarter your GST payable is $1000, then instead you would pay ATO 1000 - $359.81.

I'm also pretty suer that the laptop gets written off over 3 years. So 1/3 deducted every year.

So if you registered for GST, making over $62500 a year your in the best position to save the most on a laptop. a 17" powerbook would cost you

$3958 - $359.81 - $1745.11(48.5% of $3598.18) = $1853.08

If you really are alowed to buy one every year then you could sell one every year to and make a profit!

Phillip
14th November 2004, 01:16 PM
I don't mean to sound ignorant, but, how long before the government pays you on your claim?

OziMac
14th November 2004, 02:30 PM
Anybody depreciating a laptop over three years would have to demonstrate a good reason for doing so to the ATO if they get audited, as their policy states that the effective life for laptops is 2 years.

estoy - I agree with you, the price of leasing is probably higher than the purchase price - I was just trying to be conservative in my comparison :) And anyone in the top marginal tax braket should not need to be avoiding their tax obligations! ;) :P

Phillip - don't quite understand what your question means. The government never actually pays you anything - you simply end up paying less tax on your/your business's income.

It's slightly deceptive to look at example or talk about 'savings' - because at the end of the day, you're just paying less tax. And because it takes place over a longer period of time, the savings are not as tangible as walking into a shop and picking up a $4000 Powerbook for $1500 or whatever. But if the option for you to do this is available, then it's definitely worthwhile in the long term.

estoyloco
14th November 2004, 03:32 PM
Yeah, the Gov doesnt physically give you back a cheque. Just next time instead of having to pay $X in tax you will pay $X - your deductions.. so you will see the money at the end of the financial year..

If you can claim back GST you get to see it withing <3months (pay quartily)

Its worth it if you use it for business.... i think the ATO knows that alot of people just get them cos they can&#33; They might even do it delibrately to stimulate growth/spending. It probably something they leave there as an incentive.

Husq
14th November 2004, 04:20 PM
And anyone in the top marginal tax braket should not need to be avoiding their tax obligations

?? This isn&#39;t a dodgy scheme to defraud the ATO, it is a legitimate tax break if you want to salary sacrifice, or you use it for business.

OziMac
14th November 2004, 06:30 PM
Originally posted by Husq@Nov 14 2004, 04:20 PM

?? This isn&#39;t a dodgy scheme to defraud the ATO, it is a legitimate tax break if you want to salary sacrifice, or you use it for business.
That would be why it was followed by ;) :P

And it&#39;s more a leftover loophole than a tax break - hence it favours higher income earners - it&#39;s not in the ATO&#39;s nature to be that generous :)

Phillip
15th November 2004, 03:45 PM
Originally posted by OziMac@Nov 14 2004, 03:30 PM
Phillip - don&#39;t quite understand what your question means. The government never actually pays you anything - you simply end up paying less tax on your/your business&#39;s income.
Oh Okay get it now. Shows much much I know :rolleyes: Hopefully they teach this stuff in schools in year 10 next year :P