But Australian companies, as well as small and medium-sized businesses, now want to expand what can be depreciated, arguing that standard software has now shifted to more cloud-based service models.
Cloud-based services are unlikely to be depreciable because they are considered non-active services. Government investment incentives target only fixed capital assets, not services, and are therefore not effective in promoting cloud computing services.
Enter the Business Council. The BCA is pushing the government to change its way of thinking about digital services as an asset.
“We want to make sure the tax setup recognizes digital investment in the same way as a physical investment,” Business Council President Tim Reed said last week when he launched a new modeling of the benefits of digitization. .
The BCA provided EY models that showed that Australia could have $ 210 billion better in the next 20 years if the transition to a digital economy were accelerated.
“The BCA recommends boosting digital investment by including digital services in a 20% investment bonus for businesses of all sizes, to encourage digital investment in areas such as the use of cloud-based services.”
The BCA wants to include these cloud-based services in the government trophy investment endowment announced in the budget last year. However, including what is technically a service as an asset would cost billions of dollars.
The King of Westpac outlined the benefits of investing more in cloud computing.
“The advantage of the cloud not only varies the cost, but the software built to run in the cloud is what’s called evergreen, so it’s updated regularly; you don’t have to jump between versions,” King said.
“This is so beneficial to help us change the bank and help it improve over time. It is also beneficial from a cybersecurity perspective because you use the latest patches and they are easy to upgrade. ”
Executive director of the Institute of Certified Accountants and director of the Small Business Council, Matthew Addison, said allowing some services to be depreciated as an asset would be a significant change.
“If the government increased concessions or incentives to encourage companies to invest in cloud technology and computing, it would be good. Cloud computing is [currently] considered “software as a service,” which is like a subscription service, so it’s considered a recurring expense and not a fixed asset, “Addison said.
“There are some cloud computing platforms that are actually infrastructure added to a fixed asset and could be considered capital expenditures because they could pass the ‘durable quality’ test, which is that it lasts more than 12 months.”
“For Westpac they are almost adding a piece of infrastructure to the existing infrastructure, so it could be considered capex,” Addison said.
Peter King of Westpac outlined several areas where Westpac was adding infrastructure to cloud computing services, such as application programming interfaces (APIs).
“If you consider standard messaging and how we use it, some of the things we’ve created in the customer service center, the decision engines, how to incorporate customers into the bank – they can be used in our operations and our different brands “.
Chris Richardson, of Deloitte, said the cheaper cost of technology services presented a misleading picture of how much investment was actually made.
“Current business investment is much lower as a share of the economy than during the mining boom, but it has been in line with its average since the 1980s.
“But if you just look at nominal investment, which ignores how much your dollar is advancing in technology these days, then you think business investment is well below its average since the 1980s.”