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Almost a year after the 2022-23 Federal Budget announcement, The Technology Investment Boost and the Skills and Training Boost have passed parliament.
Businesses with an aggregated annual turnover of less than $50 million are now able to claim a 120% tax deduction for technology expenses and skills and training expenses. If you want to make the most of these deductions, here's some information you need to know.
So grab yourself a cuppa and get comfortable!
What is the ‘Technology Investment Boost?’
The Technology Investment Boost enables small and medium businesses to claim a 120% tax deduction for expenditure on digital technologies, tools, and depreciable assets to streamline and improve various aspects of their business's operations.
What is the ‘Skills and Training Boost’
The Skills and Training Boost provides a 120% tax deduction for small and medium businesses for expenses resulting from the provision of eligible external training courses to their employees by registered providers in Australia.
To utilise the technology investment boost, you had to have purchased the technology/acquired eligible assets and installed them ready for use by 30 June 2023. That’s just seven days from the date the legislation passed Parliament.
These ‘boosts’ are available to:
with an aggregated annual turnover of less than $50 million.
(Aggregated turnover is the turnover of your business and that of your affiliates and connected entities).
To find out more information about each boost, (The Technology Investment Boost and the Skills and Training Boost), see over page.
This measure applies to expenditure incurred in the following period:
From 7:30 pm AEDT 29 March 2022
Until 11:59 pm AEDT 30 June 2023
An entity can claim the boost for expenditure on a depreciating asset only if the asset is first used, or installed ready for use, by 30 June 2023.
You ‘incur’ an expense when you are in debt for it. This might be when you receive a tax invoice or it might be when you receive a contract where you are legally liable for the cost.
For depreciating assets, like computer hardware, there is an extra step. The technology needs to have been purchased and installed and ready for use.
For example, if you ordered 10 computers, you need to have received the computers and had them set up and ready to use by at least 30 June 2023. Ordering them on 29 June won’t be enough to claim the boost if you did not receive them.
The types of expenses that might be eligible for the technology boost include:
The technology also must be “wholly or substantially for the purposes of an entity’s digital operations or digitising the entity’s operations”. That is, there must be a direct link to your business’s digital operations.
For example, claiming the drone you bought at say Christmas 2022 won’t be deductible unless your business is, for example, a real estate agency that needed a drone to take aerial images of client homes to market on their website. The expense needs to relate to how the business earns its income, in particular its digital operations.
See below a downloadable table that provides an expanded description of the expenses that are eligible for the technology boost.
Repair and Maintenance Costs
Repair and maintenance costs can be claimed as long as the expenses meet the eligibility criteria.
Mixed-Use Expenditure
Where the expenditure has mixed use (i.e., partly private), the bonus deduction applies to the proportion of the expenditure that is for business use.
What Doesn’t the Technology Investment Boost Cover?
There are a few costs that the technology boost won’t cover such as costs relating to employing staff, raising capital, construction of business premises, and the cost of goods and services the business sells. The boost will not apply to:
Example
Let’s look at the example of A Co Pty Ltd (A Co) that purchased multiple laptops on 15 July 2022 to help its employees to work from home. The total cost was $100,000. 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 cost of the laptops ($100,000) as a deduction under the 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 good news for many eligible businesses is that your technology subscriptions and other products you use in your business might qualify for the boost.
The boost is claimed in your tax return with the extra 20% sitting on top your normal claim. That is, however the way the expense or asset is claimed (immediately or over time), the bonus 20% applies in the same way.
The aim of the Skills and Training Boost is to help SMEs grow their workforce, including taking on less-skilled employees and upskilling them using external training to develop their skills and enhance their productivity.
Sole traders, partners in a partnership, independent contractors and other non-employees do not qualify for the boost as they are not employees. Similarly, associates such as spouses or partners, or trustees of a trust, don’t qualify.
Registration for the training course had to be:
If an employee is part the way through an eligible training course, enrolments in courses or classes after 29 March 2022 are eligible, not before.
Let’s look at an example. Animals 4U Pty Ltd is a small entity that operates a veterinary centre. The business recently took on a new employee who has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 for the employee to undertake external training in veterinary nursing. The training meets the requirements of a GST-free supply of education. The training is delivered by a registered training provider, registered to deliver veterinary nursing education.
The bonus deduction is calculated as 20% of the amount of expenditure the business could typically deduct. In this case, the full $3,500 is deductible as a business operating expense. Assuming the other eligibility criteria for the boost 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.
Not all courses provided by training companies will qualify for the boost; only those charged by registered training providers within their registration. Typically, this is vocational training to learn a trade or courses that count towards a qualification rather than professional development.
Qualifying training providers will be registered by:
If you have any questions regarding The Technology Investment Boost or The Skills and Training Boost, please reach out to us on the details below:
Phone: (08) 9071 2173
Email: admin@smithshearer.com.au
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