The announcement by the previous government of two temporary tax incentives to support small businesses in the 29 March 2022 budget was well received. Who wouldn't like an extra 20% tax deduction? A 20% bonus tax deduction on eligible expenditure incurred on external training courses to boost skills and digital technology investment.
So with the Federal Election following shortly afterwards, and the change of government, we were still waiting for an indication from the new government whether it would honour the previous government’s proposed policy.
There was final some progress with a media release from the Treasurer Jim Chalmers on 29 August 2022 accompanied by a Treasury exposure draft legislation seeking comments and setting out the proposed small business skills and training boost (skills boost) and the small business technology investment boost (technology boost). These actions show that the Albanese Labor Government recognises 'that better trained workers and more productive small businesses are a win-win for the economy'.
The consultation period for the legislation closed on 19 September 2022 and with the timing of the Spring sitting days, is not likely that the introduction of enabling bills will be before the end of October 2022. However, the timing should provide a sufficient window for legal certainty and to incorporate new labels in the 2023 tax return forms for businesses to claim the boosts after June 2023 - being the first year the tax bonus is claimed by business.
What you need to know about the skills and training boost
Small businesses that have an aggregated annual turnover of less than $50 million will be able to deduct an additional 20 per cent of expenditure incurred on eligible external training courses provided to its employees.
To be eligible expenditure, it must be:
incurred on external training delivered to employees of the business by registered providers; and
fully deductible under another provision of a taxation law, whether in, or wholly in, the income year in which the expenditure is incurred.
Note that the requirement that the expenditure is deductible under the tax law means that if a business is GST-registered, the bonus deduction is generally calculated on the GST-exclusive amount of expenditure. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2024.
Training providers must be registered in Australia with at least one of the following four government authorities at the time the expenditure is incurred:
Australian Skills Quality Authority (within the meaning of the National Vocational Education and Training Regulator Act 2011);
Tertiary Education Quality and Standards Agency (within the meaning of the Tertiary Education Quality and Standards Agency Act 2011);
Victorian Registration and Qualifications Authority (within the meaning of the Education and Training Reform Act 2006 (Vic)); or
Training Accreditation Council of Western Australia (within the meaning of the Vocational Education and Training Act 1996 (WA)).
Further, the training:
must be within the scope of the registered training provider’s registration at the time the expenditure is incurred
cannot be provided by the business claiming the bonus deduction or any of their “associates” (within the meaning of section 318 of the Income Tax Assessment Act 1936)
can be provided either:
in person to employees physically located in Australia, or
online (employees are not required to be physically located in Australia when undertaking online training - to allow for circumstances in which employees may be temporarily located overseas for operational reasons or working remotely)
cannot be on-the-job and in-house training
cannot be for training persons other than employees - associates are excluded ie 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.
Training expenditure can include incidental costs such as books or necessary equipment, but cannot include commission or fees charged by intermediaries.
Year skills and training boost claimed:
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year ie in the 2022-23 financial year.
The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.
Special rules will apply to taxpayers who are early balancers.
The wording of the current draft legislation means that the bonus deduction is not available for training non-employee business owners such as sole traders, individual partners in a partnership and independent contractors (who are not “employees” of the business within the ordinary meaning of this term). It is hoped that with further consideration and submissions to government, this will be expanded to all businesses to enhance skills for all and not just to businesses that employ staff.
What you need to know about the technology invesment boost
Small businesses that have an aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of the cost incurred on eligible business expenses and depreciating assets for your business digital operations or digitising your operations.
As with the skills and training boost, the bonus deduction is generally calculated on the GST-exclusive amount of expenditure.
An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.
The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2023.
Eligible technology expenses
The budget announcement mentioned 'portable payment devices, cyber security systems or subscriptions to cloud-based services'.
Further detail is provided in the draft explanatory memorandum describes that expenditure as being on expenses and depreciating assets that support digital operations or digitising operations may include, but is not limited to, business expenditure on:
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
e-commerce – supporting digitally ordered or platform enabled online transactions
Further detail is needed however to confirm exactly what types of expenditure is eligible given the above descriptions and the range of possible eligible items there could be.
The following kinds of expenditure are specifically excluded from this boost:
Salary or wage costs
Capital works costs that are deductible under Division 43 of the Income Tax Assessment Act 1997
Financing costs, including interest, payments in the nature of interest and expenses of borrowing
Training or education costs
Expenditure incurred that forms part of, or is included in, the cost of trading stock.
Eligible depreciating assets expenses
The bonus deduction will be equal to 20 per cent of the cost of an eligible depreciating asset that is used for a taxable purpose, regardless of whether the asset is fully expensed under the temporary full expensing regime or a deduction is claimed under the uniform capital allowance regime based on the asset’s decline in value over its effective life. Also, repairs and improvement costs expenditure for depreciating assets will be eligible provided the costs are incurred during the relevant period.
The draft legislation proposes to exclude expenditure on expenses and assets:
that are incurred in the development of in-house software allocated to a software development pool
of depreciating assets if a balancing adjustment event occurs to the asset while the entity holds it during the relevant period, unless the balancing adjustment event is an involuntary disposal – to prevents an entity from claiming the bonus deduction if it sells the asset within the relevant period.
For expenditure that has a mix of business and private use, the bonus deduction is available only to the proportion of the business expenditure. However, when claiming the bonus deduction for expenditure on a depreciating asset, it will be assumed that the entity will continue to hold the asset throughout its effective life and the entity will use the asset for a taxable purpose to the same extent that it does in the income year it first uses or installs the asset. This eliminates the need for subsequent adjustments to the boost should the taxable use of an asset change over time.
Year technology investment boost claimed:
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year ie in the 2022-23 financial year.
The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.
Special rules will apply to taxpayers who are early balancers.
Once the full details of both the skills and training boost and technology investment boost are finalised, HelloLedger will provide more information at that time.
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