Great News, the government has rejuvenated the 120% Deduction for Skills Training and Technology Costs for small and medium businesses!
Small Business Technology Investment Boost
Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 percent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services.
An annual $100,000 cap will apply to each qualifying income year.
When the technology investment boost applies
This measure will apply to expenditure incurred in the period commencing from 7:30 pm AEDT 29 March 2022 until 30 June 2023.
How to claim the technology investment boost
For eligible expenditures incurred between 7:30 pm AEDT 29 March 2022 until 30 June 2022:
- claim the expenditure as usual in your 2021–22 tax return, and
- claim the additional 20% bonus deduction for this period in your 2022–23 tax return.
- For eligible expenditures incurred from 1 July 2022 until 30 June 2023:
you can deduct the entire 120% in your 2022–23 tax return.
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. What this means, is that no matter the method of the deduction the bonus deduction of the depreciating asset is calculated based on the asset’s cost.
Technology Investment Boost
Portable payment devices, cyber security systems, or subscriptions to cloud-based services would come under the Technology Investment boost. That is a 120% tax deduction for costs incurred.
The boost is capped at $100,000 per income year with a maximum deduction of $20,000.
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 as long as the expenses meet the eligibility criteria.
Where the expenditure has mixed use (i.e., partly private), 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 (for example, 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
For example:
A Co Pty Ltd (A Co) is a small business entity. On 15 July 2022, A Co purchased multiple laptops to allow its employees to work from home. The total cost was $100,000 (GST-exclusive). The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use. As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of a capital expense.
A Co can claim the full purchase price of the laptops ($100,000) as a deduction under temporary full expensing in its 2022-23 income tax return. It can also claim the maximum $20,000 bonus deduction in its 2022-23 income tax return.
The $20,000 bonus deduction is not paid to the business in cash but is used to offset against A Co’s assessable income. If the company is in a loss position, then the bonus deduction would increase the tax loss. The cash value to the business of the bonus deduction will depend on whether it generates a taxable profit or loss during the relevant year and the rate of tax that applies.
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, directly or indirectly, by a registered training provider and be for training within the scope (if any) 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 7.30 pm, 29 March 2022.
The training must be necessarily incurred in carrying on a business for the purpose of gaining or producing 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.
For example:
Cockablue Pets Pty Ltd is a small business entity that operates a veterinary centre. The business recently took on a new employee to assist with jobs across the center. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 (GST exclusive) for the
employee to undertake external training in veterinary nursing. The training is delivered by a registered training provider, whose scope of registration includes veterinary nursing.
The bonus deduction is calculated as 20% of 100% of the amount of expenditure that can be deducted under another provision of the taxation law. In this case, the full $3,500 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700.
In this example, the bonus deduction available is $700. That does not mean the business receives $700 back from the ATO in cash, it means that the business is able to reduce its taxable income by $700. If the company has a positive amount of taxable income for the year and is subject to a 25% tax rate, then the net impact is a reduction in the company’s tax liability of $175. This also means that the company will generate fewer franking credits, which could mean more top-up tax needs to be paid when the company pays out its profits as dividends to the shareholders.
This information has been shared by The HEANEY BUSINESS GROUP
Tax & Accounting Rockingham | Business & Personal Solutions.
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