As proposed in the 2022-23 Budget, the Government is now starting to legislate new business deductions small to medium businesses, for skills training and technology investment costs. These proposed deduction measures are not yet law.
The two 120% deduction boosts will provided for:
- External training costs
- Technology investment
How will it work?
Businesses will have access to 120% deduction for eligible expenditure on external training of employees by providers registered in Australia, from 7.30pm AEST, 29 March 2022 until 30 June 2024.
However, the bonus deduction cannot be claimed until the 2023 tax return. This means that 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.
- Must be for training employees, either in-person in Australia, or online
- 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 7.30pm, 29 March 2022.
The training must be necessarily undertaken for the purpose of gaining or producing income for the business, and only the amount charged by the training organisation is deductible. This may 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.
- 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.
Businesses will also have access to a 120% per cent deduction that will support the uptake of digital technologies, from 7.30pm AEST, 29 March 2022 until 30 June 2023.
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.
For expenditure on depreciating assets, the bonus deduction is equal to 20% of the cost of the asset that is used for a taxable purpose; so regardless of whether the depreciation method is immediate or overtime, the bonus deduction is calculated based on the asset’s cost.
The boost is capped at $100,000 per income year with a maximum deduction of $20,000 and can be used to support digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services.
- The expenditure must be eligible for deduction (salary and wage costs are excluded)
- The expenditure must have been incurred between 7.30pm (AEST), 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 your business’ 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.
Also not eligible are:
- 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
Businesses may continue to deduct expenditure that is ineligible for the bonus deduction, or over the $100,000 cap under the existing tax law.