wreck90: I contacted my local MP (Simon Bridges) and outlined my concerns.
This is the response from his office (after firstly misinterpreting the new treatment of project expenses).....
"I see what you mean but still feel you need to seek professional guidance. IRD?s position apparently does not come as ?a change in Policy?, it comes from a new interpretation of the Act, i.e. there is no discretion in its view ? it?s the Law and they?ve been interpreting it wrongly in the past."
So, they are basically telling me to go away and talk to an accountant (what help is that to correct an industry taxation issue? ).
Very disappointing that my local MP does not really care about this.
If IRD is just applying the law, then local MP's are supposed to take your complaint to the Minister and get the law (or its interpretation) fixed. He can say its an electorate issue if he needs to vote against the government. Does John Key know about this? I suspect not, because its not sexy enough to make media headlines.
I had another look at the IRD advisory and heres the way I understand it:
- Feasibility studies are fully deductible.
- Deductible software aquisition or development costs must result in ownership of some kind of rights that can be depreciated instead of written off.
"The rights in the software (if that is what has been obtained) are then able to be depreciated provided they are ?depreciable property? and are used or available for use in the taxpayer?s income earning process."
If the project created some identifiable item of source code in your library then you should be easy to make it an accounting asset and claim the rights have value for future development. A project like Incis where costs included compensation and software that was dropped partway through the project would probably break the bank under these rules.
webwat: I had another look at the IRD advisory and heres the way I understand it:
- Feasibility studies are fully deductible.
- Deductible software aquisition or development costs must result in ownership of some kind of rights that can be depreciated instead of written off.
"The rights in the software (if that is what has been obtained) are then able to be depreciated provided they are ?depreciable property? and are used or available for use in the taxpayer?s income earning process."
If the project created some identifiable item of source code in your library then you should be easy to make it an accounting asset and claim the rights have value for future development. A project like Incis where costs included compensation and software that was dropped partway through the project would probably break the bank under these rules.
The project definition very important. Remember the IRD will audit some of these projects. They will want to see the feasibility study including the project goals.
Then, they will look to see if the project goals are achieved. If not, then every man hour, cup of coffee, and other project related expenses will not be permitted to be 'capitilized' and thus cannot be depreciated or claimed in any other way.
The source code will have to be attributed to a new revenue generating software product. I'm not sure IRD will have the wool pulled over their eyes so easily, and nor would you want to risk their wrath
Just being selected for an audit is a punishment in itself that will cost you in accountancy fees regardless of the outcome.
I'm no accounting expert myself, but the expert summaries give cause to believe expenses will not be allowed. I'm not totally sure in which cases.
Eg, an iphone developer who completes 60% of applications will only be allowed to claim 60% of genuine expenses? I would think this is the case, or, am I wrong?
Not all projects have feasibility studies either. Especially for smaller companies who rely on the build-it and they will come methodology.
wreck90: I contacted my local MP (Simon Bridges) and outlined my concerns.
This is the response from his office (after firstly misinterpreting the new treatment of project expenses).....
"I see what you mean but still feel you need to seek professional guidance. IRD?s position apparently does not come as ?a change in Policy?, it comes from a new interpretation of the Act, i.e. there is no discretion in its view ? it?s the Law and they?ve been interpreting it wrongly in the past."
So, they are basically telling me to go away and talk to an accountant (what help is that to correct an industry taxation issue? ).
Very disappointing that my local MP does not really care about this.
If IRD is just applying the law, then local MP's are supposed to take your complaint to the Minister and get the law (or its interpretation) fixed. He can say its an electorate issue if he needs to vote against the government. Does John Key know about this? I suspect not, because its not sexy enough to make media headlines.
This is what I wanted, but he just told me to see an accountant.
Guess it was over his head? Or maybe he got technophobic when you mentioned software projects?
But yeah, you would have to be careful now that they have made it all so confusing now. I bet every software firm is onto their accountants to work out how to define project objectives safely to avoid having failed projects at all!
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