For the tax experts - depreciating a Laptops

[kiwigeo]

Im totally confused....I purchased a laptop computer via salary sacrifice and I wish to claim depreciation on the item. Ive asked a half a dozen people (many are accountants) about this and received half a dozen very different answers.....some say I cant claim any depreciation, others say I can claim the full cost of the laptop while others say I can only claim some of the cost. Cant find alot if info on the ATO website that relates specifically to my situation..

The facts:

1. Laptop was purchased by me and my name is on tax invoice.
2. My employer then reimbursed me for amount paid for the machine.
3 laptop is 100% used for work.

Any comments would be appreciated.

Thanks Martin

[zymurgy]

Martin,

Ring the ATO and ask them.

I would think that since the Notebook was actually paid by employer, it would not be claimable.

On the other hand, invoice is in your name, but you would also need to show income from employer (payment for notebook) - would cancel each other.

[ndru]

What Gordon said.

IIRC, the general FBT rule is that expenses subject to FBT are tax deductible by the employer, not the employee.

The new income tax rates will make this sort of thing a bit less attractive for those in the $70K-$120K range next year.

[kiwigeo]

What Gordon said.

IIRC, the general FBT rule is that expenses subject to FBT are tax deductible by the employer, not the employee.

Hi Gordon,

Laptops are one of a list of items exempt from FBT. Youre allowed to salary sacrifice towards one laptop per employee per year. Laptop doesnt have to be for work use...unless as in my case youre going to claim depreciation.

[Shaty40]

My understanding is hardware can be depreciated over a 5 year period, software is 100% deductable in the first year.

Tim

[adrian]

Since your employer ultimately paid for the laptop and it's in your name wouldn't it attract fringe benefits tax? If so then you should be careful that your employer isn't claiming it as a cost of business and then you go and claim it as a business expense also. Claiming depreciation for something you didn't pay for is not something I'd be asking the ATO about.

[ndru]

My understanding is hardware can be depreciated over a 5 year period, software is 100% deductable in the first year.

According to the public ruling TR 2000/18, the Commissioner's useful life for computers is 4 years. I think software has to be amortised over a 2.5 year period, using the diminshing value method. Anything under $300 can be written off in the same year unless it forms part of a larger system (eg hard disk integral to the functioning of a computer, an external hard disk may not be deemed as integral).

Just to add to my earlier post, I have looked at a few corporate salary sacrifice documents and none of them were clear about the deductibility of the laptop's depreciation. Some say that depreciation may be deductible, others say that it is not :confused:.

The ability for an employer to deduct an expense that the employee can or vice versa just doesn't appear consistent with the "otherwise deductible" FBT principle. I'll be happy to be corrected, though. If its true then I'll go and buy a laptop tomorrow!

[Sturdee]

The fundamental issue for claiming depreciation is to establish to the ATO's satisfaction ( read a nearly impossible smilie here) that it is used to earn assessable income.

In your case, as an employee, you would have to prove that your employment is dependant on you having your own laptop. Similar to tradesmen who have to supply their own tools to get a job. As you have been working for them already you would have a hard time proving this. You would need to prove that your employer would, and legally could, sack you for not providing your own computer and treat all other employees in the same manner.

However if you succeed than hardware can be claimed over 3 years and software in the year of purchase.


Peter.

[ndru]

You would need to prove that your employer would, and legally could, sack you for not providing your own computer and treat all other employees in the same manner.

The ATO probably could get the Administrative Appeals Tribunal to disallow such a deduction if you could not prove the nexus between employment and the use of the laptop.

In normal practice I doubt that ATO rely on this approach much. I have been audited on my deduction of professional membership expenses (professional development training). The membership wasn't a contractual condition of my employment but the ATO ended up allowing. I think they permitted it because there was no other reason why I would undertake such a membership unless I applied the knowledge in my work.

I believe they look for a "reasonable" connection between the expense and the income earned. They will, however, look for any opportunity to apportion costs between production of income and other activities (eg buying a computer to do work at home and entertainment).

[kiwigeo]

Since your employer ultimately paid for the laptop and it's in your name wouldn't it attract fringe benefits tax? If so then you should be careful that your employer isn't claiming it as a cost of business and then you go and claim it as a business expense also. Claiming depreciation for something you didn't pay for is not something I'd be asking the ATO about.

No no....I salary sacrificed to pay for the thing....its all quite legal. It works as follows.

1. I buy the laptop and get a tax invoice made out to me.
2. I present tax invoice to my employer and they reimburse me and deduct same from pre tax salary.
3. I claim depreciation on cost of laptop because its used 100% for work. THIS is the part that is in question.

Note that employer can claim GST portion of cost of laptop.

Cheers Martin

[kiwigeo]

The fundamental issue for claiming depreciation is to establish to the ATO's satisfaction ( read a nearly impossible smilie here) that it is used to earn assessable income.

In your case, as an employee, you would have to prove that your employment is dependant on you having your own laptop. Similar to tradesmen who have to supply their own tools to get a job. As you have been working for them already you would have a hard time proving this. You would need to prove that your employer would, and legally could, sack you for not providing your own computer and treat all other employees in the same manner.

However if you succeed than hardware can be claimed over 3 years and software in the year of purchase.

Have been claiming depreciation on laptops since I started in my job 16 years ago. Previous machines were paid for with post tax dollars. This is the first time Ive paid for a machine via salary sacrificing.

Would have no problems proving my employment is dependant on me having my own laptop. I work as a field based geologist working on oil rigs. Clients require me to have a laptop for daily reporting, log interp and report preparation...no laptop no job.

[ndru]

Martin

I still think that the relevant fact is that your employer has reimbursed you for the purchase, not whether you are using it for work. Have a look at this ATO website page at the second bullet point under "Basic Rules". I think that the only part you might be able to make a deduction on is any portion of the purchase price that your employer doesn't reimburse you for.

As Gordon suggested, ring the ATO to answer your question anyway. If you are hiring a tax advisor on this matter then get them to put their advice in writing.

[kiwigeo]

Just to add to my earlier post, I have looked at a few corporate salary sacrifice documents and none of them were clear about the deductibility of the laptop's depreciation. Some say that depreciation may be deductible, others say that it is not :confused:. It doesn't seem consistent with the "otherwise deductible" FBT principle. I'll be happy to be corrected, though. If its true then I'll go and buy a laptop tomorrow!

Ive combed through the ATO (including relevant TR's) and can find nothing that refers specifically to depreciating laptops that have been bought via a salary sacrificing arrangment with ones employer. It seems to me that I (or preferably someone else) needs to apply for an ATO ruling on this.

For a rundown on salary sacrificing laptops see April edition of Personal Investment Magazine (pg 23). The article basically states the following:

1. When an employer packages a laptop in lieu of salary the employer is exempt from paying FBT on same.
2. The FBT concession is available regardless of how the laptop is to be used (eg. you can buy it for your kids).
3. the FBT concession applies to one laptop per year per employee.
4. Employer can claim back GST component of purchase price.
5. It doesnt matter whether employer purchases laptop on employees behalf or employye buys computer and then gets remibursed. Whats important is that a salary sacrificing agreement is in place between the two parties.
6. If laptop is used for business purposes cost of same can be depreciated over 3 year period. Documentation (eg diary) will be required by ATO to verify computers business use.

Of course the ATO has the final word on the matter (and just about everything else) and its view is probably the opposite to that of PI magazine. All very confusing.

Next step I guess will be a letter to ATO

[kiwigeo]

Martin

I still think that the relevant fact is that your employer has reimbursed you for the purchase, not whether you are using it for work. Have a look at this ATO website page at the second bullet point under "Basic Rules". I think that the only part you might be able to make a deduction on is any portion of the purchase price that your employer doesn't reimburse you for.

As Gordon suggested, ring the ATO to answer your question anyway. If you are hiring a tax advisor on this matter then get them to put their advice in writing.

The interpretation above is one I received from one accountant but I have also received competely different interpretations from other accountants....I dont know who to believe. Will get onto the ATO as suggested...and end up even more confused. Will post with more info as it comes to hand.

Thanks for the input/assistance.

[kiwigeo]

Have a look at this ATO website page at the second bullet point under "Basic Rules". I think that the only part you might be able to make a deduction on is any portion of the purchase price that your employer doesn't reimburse you for.

This rule only applies if Employer bears the cost of the laptop. If Im salary sacrificing this is not the case...its my pre tax dollars Im spending.