Budget: Y2K tax relief for business

Australian business was free to sigh with relief last night. Belatedly, after much indecision, the federal government has decided it will provide just about full tax deductibility for millennium-bug work.

The IT industry will be equally pleased with the federal government's Budget decision, which is recognition the government needs to do more to encourage business to tackle the problem head-on.

And both can look to further relief. Computer software purchases of up to $300 will now be immediately tax deductible for business buyers, and large software purchases will now be able to be written off in two-and-a-half years. Where the licence period for the software is less than two-and-a-half years, buyers will be able to amortise it over the period of the licence.

And software developed in-house will be regarded as capital expenditure while under development, and then will be able to be amortised at the 40 per cent rate.

Under the new millennium bug ruling, both expenditure on initial diagnosis work on software to determine Y2K compliance and expenditure on modification and testing will be on revenue account.

And the government has softened the initial proposal of the Australian Taxation Office, which would have denied businesses the chance to claim total replacement of systems for Y2K purposes. Now Y2K-related expenditure on acquiring new software or substantial rebuilds of current software will also be tax deductible, if the expenditure is incurred before January 1, 2000, under legislation to be introduced.

Treasurer Peter Costello said in his budget speech: "The government considers that expenses incurred in detecting and remedying software problems associated with the millennium bug should, in general, be immediately deductible for taxation purposes.

"This reflects the government's determination that businesses should be encouraged to take all steps to iron out possible computer software failure before year 2000."

Under the new software measures, taxpayers who stop using software within two-and-a-half years of acquisition will be allowed an immediate deduction of the unrecouped expenditure at that time; expenditure on enhancing or upgrading the functional capacity of computer software will be treated as capital and expenditure that does not enhance functionality, such as maintenance, testing, code reviews, minor alterations/modifications and remedying defects will continue to be treated on revenue account.

But the Budget contained no big portfolio spending initiatives for the information industry, Industry Minister John Moore saying the budget confirms the initiatives in the $1.26 billion Investing for Growth industry policy statement.

In other Budget measures, the Australian Taxation Office has received $27.7 million to replace computer hardware, software and communications equipment. The allocation will allow the ATO to maintain the IT infrastructure put in place under the Tax Office Modernisation Project, started in 1989. The government said the project had allowed the ATO to cut staffing and support costs.

And the government has allocated $12.5 million for replacement of equipment at Austrade. A report had found the agency's equipment was nearing the end of its economic life.

The Department of Health and Family Services will be in charge of an information "megahub", developed at a cost of $6.6 million over the next four years, that will provide national access to health and medical information over the Internet.

There's also $6.6 million for projects designed to help families gain information about government services and programs, and to help ensure collaboration between service providers.

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