Small and medium business can now take advantage of a 120% deduction on skills training and technology costs.
The 2022-23 Budget proposed a 120% tax deduction for expenditure by small and medium businesses on technology, or skills and training for their staff. This proposal has now been adopted by the current government and details released in recent exposure draft by Treasury.
Two investment boosts
Two investment ‘boosts’ will be available to small and medium businesses with an aggregated annual turnover of less than $50 million:
- Skills and Training Boost
- Technology Investment Boost
When and how to claim your 120% deduction
The Skills and Training Boost is intended to apply to expenditure from 29 March 2022 until 30 June 2024.
The business will not be able to start claiming the bonus deduction until the 2023 tax return. For expenditure incurred between 29 March 2022 and 30 June 2022, the additional 20% ‘boost’ deduction will not be claimable until the 2022-23 tax return
The Technology Investment Boost is intended to apply to expenditure from 29 March 2022 until 30 June 2023.
As with the Skills and Training Boost, the additional 20% deduction for eligible expenditure incurred by 30 June 2022 will be claimed in the 2023 tax return.
The boost for eligible expenditure incurred on or after 1 July 2022 will be included in the income year in which the expenditure is incurred.
When it comes to expenditure on depreciating assets, the bonus deduction is equal to 20% of the cost of the asset that is used for a taxable purpose. Regardless of the method of deduction that the entity takes (whether immediate or over time), the bonus deduction in respect of a depreciating asset is calculated based on the asset’s cost.
Technology Investment Boost
The Technology Investment Boost is a 120% tax deduction for expenditure incurred on business expenses and depreciating assets that support digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services etc.
The boost is capped at $100,000 per income year with a maximum deduction of $20,000.
To be eligible for the bonus deduction:
- The expenditure must be eligible for deduction (salary and wage costs are excluded for the purpose of these rules)
- The expenditure must have been incurred between 29 March 2022 and 30 June 2023
- If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use by 30 June 2023.
To be eligible, the expenditure must be wholly or substantially for the entity’s digital operations or digitising its operations. For example:
- digital enabling items – computer and telecommunications hardware and equipment, software, systems and services that form and facilitate the use of computer networks;
- digital media and marketing – audio and visual content that can be created, accessed, stored, or viewed on digital devices; and
- e-commerce – supporting digitally ordered or platform enabled online transactions.
Repair and maintenance costs can be claimed if the expenses meet the eligibility criteria.
Where the expenditure has mixed use (partly private/non business use), the bonus deduction applies to the proportion of the expenditure that is for an assessable income producing purpose.
The bonus deduction is not intended to cover general operating costs relating to employing staff, raising capital, the construction of the business premises, and the cost of goods and services the business sells. The boost will not apply to:
- Assets that are sold while the boost is available
- Capital works costs such as improvements to a building used as business premises
- Financing costs such as interest expenses
- Salary or wage costs
- Training or education costs
- Trading stock or the cost of trading stock
Skills and Training Boost
The Skills and Training boost is a 120% tax deduction for expenditure incurred on external training courses provided to employees.
External training courses will need to be provided to employees in Australia or online and delivered by training organisations registered in Australia.
To be eligible for the bonus deduction:
- The expenditure must be for training employees, either in-person in Australia or online
- The expenditure must be charged by a registered training provider and be for training within the scope of the provider’s registration
- The registered training provider must not be the small business or an associate of the small business
- The expenditure must be deductible
- Enrolment for the training must be on or after 29 March 2022.
The training must be necessarily incurred in carrying on a business for the purpose of gaining or producing income. That is, there needs to be a nexus between the training provided and how the business produces its income.
Only the amount charged by the training organisation is deductible. In some circumstances, this might include incidental costs such as manuals and books, but only if charged by the training organisation.
Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees. The training boost is not available to:
- Sole traders, partners in a partnership, or independent contractors (who are not employees)
- Associates of the business such as a relative, spouse or partner of an entity or person, a trustee of a trust that benefits an entity or person and a company that is sufficiently influenced by an entity or person.
How can Walsh Accountants Help?
Our team are business specialists! We can help you to understand how to implement the federal Government Skills Training and Technology boosts into your business or help you to improve your cashflow so you have more money to invest into your business.
If you’re in need of our expert help and guidance, contact us today for a complimentary discussion based on your personal circumstances.