The 120% technology and skills ‘boost’ deduction
The 120% deduction for technology, skills, and training expenses for small and medium-sized businesses has been approved by Parliament.
The 120% tax break for spending by small and medium firms (SME) on technology, or skills and training for their workers, is finally in legislation, over a year after the 2022–23 Federal Budget release.
There are some complications with the timeframe, though. You had to have purchased the technology and installed it in qualified assets before June 30, 2023, which is just seven days after the legislation was passed by the legislature, in order to qualify for the technological investment bonus.
Who is eligible for the boosts?
These 120% boosts in training and technology are available to small businesses (individual sole traders, partnerships, corporations, or trading trusts) with annual sales of less than $50 million. Aggregate turnover refers to the total revenue generated by your firm and all of its subsidiaries, divisions, and partners.
Boost from a $20k technological investment
Small and medium-sized enterprises (SMEs) can take advantage of a bonus deduction for expenses and depreciating assets related to digital operations or digitisation from 7:30 pm (AEST) on March 29, 2022, until 30 June, 2023.
A debt is considered to have “incurred” when it becomes due under the terms of a contract or tax invoice.
There is an additional phase for depreciating assets, such as computer gear. The technology must be ready for usage after being installed and purchased. For instance, if you ordered 10 computers, you must have received them and prepared them for use by no later than June 30, 2023. If you don’t get them despite ordering them on June 29, you cannot get the bonus.
The following categories of costs may be covered by the technology boost:
- Digital enabling elements – such as the systems and services that help create and operate computer networks, as well as computer and telecommunications hardware and software, internet prices;
- Digital media and marketing – the creation, access, storage, and viewing of audio and visual content on digital devices, including web page design;
- E-commerce– products and services that facilitate online transactions that are digitally ordered or platform-enabled; mobile payment devices; digital inventory management; cloud service subscriptions; and guidance on digital operations or digitising operations, including recommendations for digital tools to support business continuity and expansion.
- Cybersecurity-it includes backup management and monitoring services in addition to cyber security technologies.
In addition, “wholly or substantially for the purposes of an entity’s digital operations or digitising the entity’s operations” is required of the technology in question. That is to say, everything in your company’s digital endeavours should serve some overarching purpose.
If you want to deduct the cost of a drone you bought, say, for the holidays in 2022, you won’t be allowed to do so unless your business is a real estate firm that plans to use the drone to take aerial photographs of client homes for internet advertising purposes. The expense must be rationalised in terms of how the company makes money, in particular through its online activities.
As long as the charges comply with the eligibility requirements, repair and maintenance costs may be claimed.
When an expense has a mixed purpose (partially private and partly business), the bonus deduction is only applicable to the amount of the expense that is for business purposes.
The price of labour, capital, real estate, and products and services will still need to be covered in addition to the technological upgrade. Whom this benefit will not be extended to:
- Assets that you bought but later sold during the applicable period (for instance, on or before June 30, 2023).
- Capital works expenses (such as renovations to a building that houses a business).
- Financing charges, including interest costs.
- Wage or salary expenses.
- Training or education expenses; employee training for technology or software won’t be covered (see Skills and Training Boost).
- The price associated with trading stocks.
For example, on July 15, 2022, A Co Pty Ltd (A Co) bought a large number of laptops so that its employees could work remotely. The whole price tag was $100,000. The computers were shipped out on July 19, 2022, and employees were instructed to use them solely for work-related tasks.
A Co is qualified to deduct a capital expense for depreciation since it is the owner of the assets. Under the temporary full expense, A Co. can deduct the $100,000 cost of the laptops on its 2022–23 income tax return. Additionally, it may deduct up to $20,000 in bonus expenses on its 2022–23 income tax return.
The $20,000 bonus deduction is applied to A Co’s assessable income rather than being paid to the company in cash. The bonus deduction would enhance the tax loss if the company is operating at a loss. The monetary value of the bonus deduction to the business will depend on the company’s taxable profit or loss for the year in question, as well as the tax rate in effect.
The good news is that many eligible firms may be able to receive a boost on their technology subscriptions and other products.
The 20% additional is added on top of your regular claim when you claim the increase on your tax return. In other words, the additional 20% applies regardless of whether the outlay or asset is claimed immediately or over time.
The Training and Skills Boost
With the Skills and Training Boost, you can deduct 120% of the cost of providing employees with outside training. This boost’s goal is to assist SMEs in expanding their workforce, which may involve hiring less-skilled workers and upskilling them through external training to improve their abilities and increase their productivity.
Because they are not considered workers, sole proprietors, partners in a partnership, independent contractors, and other non-employees are not eligible for the raise. The same is true for companions like spouses, partners, trustees of trusts, etc.
There are a few guidelines as usual:
- Participants had to sign up for the training programme between March 29, 2022, and June 30, 2024, at 7:30 p.m. (AEST). If an employee is already halfway through a relevant training course, they are only allowed to enrol until March 29, 2022.
- Your business must be able to deduct the training expenses under normal circumstances. In other words, the training is pertinent to how the company generates revenue.
- Your company must be charged (directly or indirectly) for the training by a certified training provider (see What groups can give training for the boost).
- The training must be offered online or in person in Australia to employees of your company.
You or any of your business partners are not allowed to serve as the training provider.
Incidental costs, such as the cost of course materials, may also be included in the total cost of training if the training provider bills the business for them.
Consider this example. The veterinary clinic known as Animals 4U Pty Ltd is owned and operated by a small business. The organisation just hired a new employee to help out with various chores in the hub. The worker is keen to learn more and develop her career to veterinary nurse. She has some background working with animals in lab settings. The employee will receive $3,500 to cover the cost of her veterinary nursing education outside of the organisation. The education provided qualifies as a GST-free supply of education. The training must be provided by an accredited institution that has been granted permission to offer veterinary nursing programmes.
The incentive is reduced by 20% of the amount the corporation would have been able to deduct had the expenses been incurred in the normal course of business. The entire $3,500 is 100% tax deductible as a business operational expense. If you meet all the criteria for the raise, your bonus will be worth $3,500 less a 20% discount. Hence, $700.
In this case, the maximum bonus deduction is $700. The corporation will not actually get any cash from the ATO, but rather will be able to deduct $700 from its taxable income. Assuming a positive taxable income for the year and a tax rate of 25%, the corporation will save $175 in taxes as a result. In addition, when a corporation pays out dividends to its shareholders, an additional top-up tax may be owed because the organisation will generate fewer franking credits.
What organisations can offer the boost training?
Only those courses invoiced by registered training providers within the scope of their registration will be eligible for the hike, not all courses offered by training organisations. Instead of professional growth, this is typically vocational training to learn a trade or courses that count towards a certificate.
For more information on the 120% technology and skills boost deduction, send an inquiry to the Bates Cosgrave team.