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Small Business Technology Investment Boost

After a substantial delay, Parliament passed a law granting SMEs a 120% tax deduction for tech, skills, and training expenses. This article will help you maximize your deductions and seize this opportunity.

Understanding the Timing and Requirements

To maximize the  small business technology investment boost, you need to consider certain timing and requirements. To claim the deduction, you need to buy and install eligible assets for use by June 30, 2023.

Who Can Access the Boosts?

Small business entities with an annual turnover under $50 million can access the 120% boosts for skills and training, as well as small business technology investments. These entities include individual sole traders, partnerships, companies, or trading trusts. Aggregated turnover refers to the combined turnover of your business, affiliates, and connected entities.

 

Small Business Technology Investment Boost

The Small Business Technology Investment Boost provides SMEs with a bonus deduction for expenses and depreciating assets related to digital operations or digitising. This boost is applicable from 7:30 pm (AEST) on 29 March 2022 until 30 June 2023.

When it comes to claiming the boost, it is important to understand the concept of incurring an expense. An expense is recognized when you’re legally responsible for it, which can be proven with a tax invoice or a contract.

For depreciating assets like computer hardware, you have to take an additional step. You must purchase and install the technology, making it ready for use. For instance, if you ordered 10 computers, you need to have received and set them up for use before 30 June 2023. Merely ordering them on 29 June won’t be sufficient to claim the boost if you haven’t received them.

The technology boost encompasses various eligible expenses, such as:

  • Digital enabling items: Encompass hardware, software, internet expenses, and services for computer network use.
  • Digital media and marketing: Include costs for audiovisual content accessible on digital devices, including web design.
  • E-commerce: Costs cover goods or services supporting online transactions, payment devices, digital inventory management, cloud-based subscriptions, and digital operations advice.
  • Cybersecurity: Expenses related to cybersecurity systems, backup management, and monitoring services.

 

Eligible Expenditure Incurred

It’s crucial to understand that technology expenses must be directly linked to your business’s digital operations to be deductible. For instance, buying a drone in December 2022 for personal use doesn’t qualify unless your business, like a real estate agency, needs it for marketing by capturing aerial images of client homes on their website. Repair and maintenance costs can be claimed if they meet the criteria. However, the bonus deduction only applies to the business portion if there’s mixed private use.

The small business technology boost doesn’t cover expenses like staffing, capital raising, premises construction, goods and services costs, assets bought and sold during the relevant period, capital projects, interest expenses, salaries, or training (covered by the Skills and Training Boost). It also excludes trading stock and related costs.

 

An Illustrative Example

Let’s consider the example of A Co Pty Ltd (A Co) that purchased multiple laptops on 15 July 2022 to facilitate remote work for their employees. The total cost of the laptops was $100,000, and they were delivered on 19 July 2022 and immediately assigned to staff for business use.

As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of this capital expense. The company can deduct the full cost of the laptops ($100,000) under the temporary full expensing rule in its 2022-23 income tax return. Additionally, A Co can also claim the maximum $20,000 bonus deduction in the same tax return.

It is important to note that 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, the bonus deduction would increase the tax loss. The actual value of the bonus deduction to the business depends on whether it generates a taxable profit or loss during the relevant year and the applicable tax rate.

Qualifying for the Boost: Technology Subscriptions and More

The good news is that many eligible businesses can qualify for the small business technology investment boost by considering their technology subscriptions and other products used in their operations. When you claim the boost, you add the extra 20% on top of the normal claim. This means that regardless of how you claim the expense or asset, whether immediately or over time, you consistently apply the bonus 20% deduction.

The Skills and Training Boost

In addition to the small business technology investment boost, there is also the Skills and Training Boost available for SMEs. This boost offers a 120% tax deduction for external training courses provided to employees. The aim of this boost is to help SMEs expand their workforce by hiring less-skilled employees and providing them with external training to develop their skills and enhance productivity.

Sole traders, partnership partners, independent contractors, and non-employees don’t qualify for the Skills and Training Boost. Similarly, associates such as spouses or partners, or trustees of a trust, are also ineligible.

The following rules apply to qualify for the Skills and Training Boost:

  • You must have made the registration for the training course between 7:30 pm (AEST) on 29 March 2022 and 30 June 2024.
  • The training must be deductible to your business under ordinary rules and directly related to how your business earns its income.
  • A registered training provider must provide the training, and they must charge your business for the training.
  • The training must be for employees of your business and delivered either in-person in Australia or online.
  • The training provider cannot be your business or an associate of your business.
  • Training expenses can include related costs like books or equipment, as long as the training provider charges the business for these items.

 

Skills and Training Boost Example

To better understand how the Skills and Training Boost works, let’s consider an example. Animals 4U Pty Ltd, a small entity operating a veterinary center, recently hired a new employee who wishes to upskill and become a veterinary nurse. The business pays $3,500 for the employee to undergo external training in veterinary nursing. A registered training provider specializing in veterinary nursing education delivers the training.

In this example, the business calculates the bonus deduction as 20% of the amount of expenditure that it can typically deduct. Assuming it meets all other eligibility criteria, the business can deduct the full $3,500 as a business operating expense. Thus, the bonus deduction would be 20% of $3,500, which equals $700.

The bonus deduction doesn’t lead to a $700 cash payment from the Australian Taxation Office (ATO); it simply lowers taxable income by $700. For a company with a 25% tax rate and positive taxable income, this means a $175 decrease in tax owed. However, note that fewer franking credits might lead to extra top-up tax when distributing profits as dividends to shareholders.

 

Choosing the Right Training Providers

Not all courses provided by training companies qualify for the Skills and Training Boost. Only courses charged by registered training providers within their registration scope will be eligible. Typically, these providers offer vocational training for trades or courses that contribute to qualifications rather than professional development.

In conclusion, understanding the timing, requirements, and eligibility for the 120% Tech and Skills Boost empowers SMEs to maximise deductions and enhance their businesses. Invest in tech and employee training for growth. Get in touch with us now!

 

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