Confusion reigns: is the era of the half price laptop, purchased from pre-tax income, really over? We've got the definitive answer.
For many Australians, salary sacrifice rules around laptops used to be the sweetest way to squeeze a little -- or quite a lot -- extra out of their pay packet. Any Australian employee could buy a laptop out of their pre-tax income, mening that instead of the tax money going to the government, it could instead be spent on the laptop.
For people on a 48% tax rate, it meant the laptop was effectively half price. On top of that, the employee didn't have to pay GST on the notebook, saving another 10%. And then the laptop's value could be depreciated over three years, with the amount of depreciation each year used as a tax deduction against personal income.
Put simply, the government has been paying for hundreds of thousands of laptops for taxpayers almost completely every year. It seemed too good to be true, and perhaps it was -- Kevin Rudd's budget introduces changes to curb this practice.
Changes to tax laws mean you can no longer buy an fringe benefits tax (FBT)-exempt notebook PC through salary sacrifice and also depreciate it over a number of years. But does this mean you can still get a new laptop through your work and save money? APC got the full story from the Australian Taxation Office.
Legislation introduced in the 2008 budget, with immediate effect from May 13, effectively closed a loophole in taxation law which had allowed high-salaried individuals to get a laptop computer almost for nothing. By purchasing a notebook — ostensibly for work use — via salary sacrifice, buyers would not pay tax on that part of their income, a saving of up to 45% for workers in the top tax bracket. Such PCs were also exempt from fringe benefits tax (FBT), which is paid by the employer on non-cash benefits which accrue to employees, so neither side came out worse from the deal.
The largesse didn't end there, however. Individuals could also then depreciate the machine (usuallyover a three-year period), scoring further deductions on their taxable income each year. If you sold the PC as second-hand at the end of that period, it might even prove possible to make a profit on the deal.
That rule had been in place since 1995, but everything changed with the May announcement, which eliminated the double-dipping option. While you can still purchase a PC (or other technology items including PDAs) under salary sacrifice rules and not have them subject to FBT, you can't then claim the depreciation on those items against your personal income. Only one level of tax saving will be allowed.
If you've purchased a PC in earlier years and are currently depreciating it, that deduction will be permitted for the 2007-2008 tax years, but not in any subsequent years. While a salaried taxpayer might not typically include depreciation on their return, it is possible to do so.
"Prior to the budget announcement it was possible for an employee to claim depreciation on a work-related laptop computer acquired under a salary sacrifice arrangement, the argument being that it is used at home after hours to perform employment duties," an ATO spokesperson told APC. "The new measure makes it clear that any FBT-exempt eligible work items (like a laptop for an example), especially those provided under a salary sacrifice arrangement, will no longer be eligible to be claimed as a depreciation deduction by the employee."
More chillingly even for people planning a late-in-the-financial-year laptop purchase for the tax savings alone, the rules for what you can purchase have been tightened up. Previously, FBT-exempt PCs weren't subject to any formal test of their work role, but that has now changed. Any item purchased as FBT-exempt must be "primarily" for business use, the ATO spokesperson explained. "This type of test is not new. A similar test to determine if mobile/car phones can be considered eligible work related items has been used for FBT purposes for a number of years."
More detailed guidelines are likely to follow in the near future. "The Tax Office is looking at opportunities to provide further guidance to the community on applying this aspect of the proposed law once it has been enacted," the spokesperson said.
However, while those guidelines may well end up being more specific, there's already one clear and inescapable rule: you can't get more than one machine. If you've already got a notebook at work, then there's no way you'll be salary sacrifice a second machine for home use and have it exempted from FBT.
One potential loophole suggested in some online forums is to buy a cheaper machine that flies beneath the FBT radar. FBT amounts under $1,000 don't have to be declared on individual payment summaries, and that figure rises to $2,000 in the new financial year.
However, this represents a misunderstanding of how FBT works. While the FBT amounts may not appear on your individual payment summaries, they still have to be paid by your employer. "The exemption is only for the reporting of such fringe benefits, not for the fringe benefits tax liability itself. Any taxable benefits provided even within this threshold still have to be returned and accounted for by the employer," the ATO spokesperson
As such, there's now little incentive for the employer to help you score a salary-sacrificed notebook PC as a tax-saving strategy, since it now costs the business money regardless. (FBT is calculated on an April-March year, so it also makes for fiddlier paperwork.)
Bottom line? If you genuinely do need a laptop for work, salary sacrifice may make it a little cheaper. But using it to acquire a machine for the kids to play on is very unlikely to fly anymore.