Computer tax break yet to make an impact

If small business owners had been thinking of upgrading their computer systems, the federal government gave them a good incentive to do so in the 2009 budget, offering a chance to expense the entire purchase.

Now, if only they would take the government up on the offer.

The budget offered a temporary measure effectiveJan. 27, 2009 to Feb. 1, 2011 that would allow businesses to deduct 100 per cent of a computer purchase that year, rather than simply deducting the amount that the computer had depreciated that year.

The government anticipated the move would jump-start both a sluggish technology sector and small and medium-sized businesses as Canada struggled with the effects of a worldwide economic downturn.

But through the first nine months of the program, the results have been underwhelming.

PC shipments in Canada were down 24.6 per cent in the first quarter of 2009, said Tim Brunt, a senior analyst with IDC Canada.

"On its own the measure hasn't done much to spark purchases," he said. "The bottom line is it hasn't had much of an impact."

Windows 7 launch coming

There is one rather large factor that may be both the cause of sluggish PC sales thus far and a sign of hope that the government program may find more willing participants in the year to come: Microsoft is coming out with a new operating system, Windows 7.

It's been nearly three years since Microsoft launched of Windows Vista, which was hyped as a revolutionary upgrade but proved a disastrously tough sell. Consumers and businesses alike complained it had too many layers of security warnings, used too much memory and, despite all the hype, was ultimately an inferior user experience to the previous operating system, Windows XP.

As a result, many PC users never made the switch, while some, having made the switch to Vista, returned to XP, an operating system launched in 2001 that is beginning to show its age.

So it's not surprising that Windows 7, due to be launched on Oct. 22, is expected to help computer sales around the world.

'Painful' transition

How much it will help is a matter of debate, since many PC users are expected to simply upgrade their software and not get an entirely new computer.

At a recent news conference in Munich, Microsoft CEO Steve Ballmer said he expected the bump in PC sales would "not be huge."

But Brunt said business owners may have been holding off their purchases until the OS came out. It's also possible that upgrading to new hardware may be more desirable than simply upgrading the operating system.

In a recent review, Influential Wall Street Journal technology writer Walt Mossberg described upgrading to Windows 7 from XP as "tedious and painful."

The federal Conservatives appeared to have high hopes that their computer tax credit would have a big impact on the Canadian economy, based on their how much they estimated the incentive program would cost $340 million in 2009-10 and $355 million in 2010-11 in lost tax revenue implying spending on new PCs as a result of the measure would be even higher, as some of the purchase was already deductible.

Impact downplayed

Even if that turns out to be the case, the technology industry doesn't see the measure as having a big impact on the bottom line for hardware manufacturers.

John Reid, president of Canadian Advanced Technology Alliance, said after the budget was announced that any gains in sales during the two years of the program would likely come out of sales figures well down the road.

If sales so far have shown no signs of improving because of the measure, that doesn't mean businesses weren't pleased withits inclusion in the budget, said Corinne Pohlmann, vice president of national affairs for the Canadian Federation of Independent Businesses.

Pohlmann said she expects companies to take advantage of the tax break, though the timing may not be right for everyone.

The issue for many small businesses is that any tax deduction is more attractive when profits are up, Pohlmann said. In a down year, companies get less bang for their buck and the computer remains just another expense.

"The good thing is that it's a two-year window, so if things pick up next year people will be able to take advantage," she said.