Business push for cloud computing to be tax deductible – The Australian Financial Review

But corporate Australia, as well as small and medium sized business, now wants to expand what can be depreciated, arguing that standard software has now transitioned to more cloud-based service models.

Cloud-based services are unlikely to be depreciable because they are considered services, not assets. Government investment incentives are only aimed at fixed capital assets, not services, and so are not effective for encouraging cloud computing services.

Enter the Business Council. The BCA is pushing the government to change the way it thinks about digital services as an asset.

We want to make sure tax settings recognise digital investment in the same way as a physical one, Business Council President Tim Reed said last week when releasing new modelling on the benefits of digitisation.

The BCA provided modelling from EY that showed Australia could be $210 billion better off over the next 20 years if the shift to a digital economy was sped up.

The BCA recommends driving digital investment by including digital services in a 20 per cent investment allowance for businesses of all sizes, to encourage digital investment in areas such as using services based on the cloud.

The BCA wants to include these cloud-based services in the governments trophy investment allowance announced in the budget last year. However, including what is technically a service as an asset would cost billions of dollars.

Westpacs King set out the advantages of investing more in cloud computing.

The benefit of cloud is not only you variabilise the cost but the software built to run on the cloud is whats called evergreen so it upgrades itself regularly you dont have to hop between versions, Mr King said.

Thats so beneficial in helping us change the bank, helping it improve over time. Its also beneficial from a cyber security perspective because you are running on the latest patches and they are easy to upgrade.

Executive director of the Institute of Certified Bookkeepers and Small Business Council director Matthew Addison said allowing some services to be depreciable like an asset would be a significant change.

If the government were to increase concessions and or incentives to encourage businesses to invest in technology and cloud computing that would be a good thing. Cloud computing is [currently] considered software as a service, which is like a subscription service, so it is considered a recurring expense and not a fixed asset, Mr Addison said.

There are some cloud-computing platforms that are actually a piece of infrastructure added to a fixed asset and that could be considered capital expenditure because it could pass the test of enduring quality, which is that it lasts for more than 12 months.

For Westpac they are pretty much adding a piece of infrastructure on top of existing infrastructure, so that could be considered capex, Mr Addison said.

Westpacs Peter King outlined several areas where Westpac was actually adding infrastructure to the cloud computing services, such as application programming interfaces (APIs).

If you think about standard messaging and how we use it, some of the things we built in the customer service hub, decision engines, the way we bring customers into the bank they can be used across our operations and our different brands.

Deloittes Chris Richardson said the cheapening cost of technology services presented a deceptive picture about how much investment was actually taking place.

Current business investment is much smaller as a share of the economy than it was during the mining boom, but still in line with its average since the 1980s.

But if you only look at nominal investment, which ignores how much further your dollar goes on tech stuff these days then youd think business investment today is well below its average since the 1980s.

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Business push for cloud computing to be tax deductible - The Australian Financial Review