The legislative authority has renewed the 120% skills training and technology expenses deduction for small and medium companies. An election ago, the 2022-23 Budget suggested a 120% tax deduction for small and medium businesses’ skills training and technology expenses. This proposal has now been approved by the existing Government and details were issued in an earlier exposure draft by the treasury.
Timing
Two investment boosts will be presented to small and medium companies with total annual revenue of less than $50 million:
- Technology investment boost
- Skills and training boost
The Skills and Training Boost is likely to apply to expenses from 7:30 pm ACT time on Budget night, March 29, 2022, until June 30, 2024. However, the business can’t commence claiming the bonus deduction until the 2023 tax return. This is for expenses incurred between March 29, 2022, and June 30, 2022, the extra 20% ‘boost’ deduction can’t be claimed until the 2022-23 tax return.
The Technology Investment Boost is likely to apply to expenses from 7:30 pm ACT time on Budget night, March 29, 2022, until June 30, 2023. With the Skills and Training Boost, the extra 20% deduction entitled to expenditure obtained by June 30, 2022, will be claimed in the 2023 tax return. The boost for entitled expenditure obtained on or after July 1, 2022, will be incorporated in the income year in which the expense is incurred.
When it is a matter of expenses on diminishing assets, the bonus deduction is equivalent to 20% of the cost of the asset that is used for a taxable purpose. It means, that irrespective of the way of deduction that the entity takes, the bonus deduction in relation to a depreciating asset is calculated dependent on the cost of assets.
Technology Investment Boost
The technology investment boost is a 120% tax deduction for expenses obtained on business expenses and depreciating assets that endorse digital adoption, such as cyber security systems, portable payment devices, or subscriptions to cloud-based services. It has a maximum deduction of $20,000 and is capped at $100,000 per income year. The conditions to be met to be entitled to the bonus deduction:
- The expenses must be entitled to a deduction (wages and salary costs are not included for the purpose of these rules).
- The expense must have been obtained between 7:30 pm (AEST), March 29, 2022, and June 30 2023.
- If the expense is on a depreciating asset, the asset must be first installed and ready for use by June 30, 2023.
To be entitled to this, the expenses must be for the entity’s digital operations. For instance:
- E-commerce: supporting platform enabled online or digitally ordered
- Digital enabling items: telecommunications and computer hardware, software, services and systems that form and assist with the use of computer networks
- Digital media and marketing: audio and video content that can be assessed, created, viewed or stored on digital devices
Maintenance and repair costs can be claimed if the expenditures meet the eligibility criteria. If the expenditure has mixed use, the bonus deduction applies to the part of the expenditure that is for an assessable income. The bonus deduction is not likely to cover general operating expenses in relation to hiring staff, increasing capital, business premises construction, and the cost of services and goods the business sells. The boost will not be applicable for:
- Sold assets when the boost is present
- Capital works cost
- Salary or wage costs
- Education or training costs
- Financial costs that include interest expenses
- Trading stock
For instance:
A Co Pty Ltd is a small business. A Co bought several laptops for its employees to work from home on 15 July 2022. The total expense was $100,000, excluding GST. The delivery date of the laptops was 19 July 2022 and given to staff for business use. Being an asset holder, A Co is eligible to claim a deduction for the capital expense depreciation. A Co can claim the total retail price of the laptops as a deduction that comes under temporary full expensing in its 2022-23 income tax return. It can claim around $20,000 bonus deduction in its 2022-23 income tax return. This bonus is used to offset against A Co’s assessable income, and it is not paid in cash. If the company is experiencing a loss, then the bonus will maximise the tax loss. The cash value of the bonus deduction to the business would be based on whether it produces a taxable profit or loss during the relevant year and the tax rate that applies.
Skills and Training Boost
The Skill and Training Boost is a 120% tax deduction for expenses obtained on outside training courses offered to employees. External training courses will require to be offered to employees online or in Australia, and delivered by training organisations that are registered in Australia. To be eligible for the bonus deduction:
- The expenses must be for training employees, either online or in-person in Australia
- The expenses must be charged by the registered training provider directly or indirectly, be for training and should be within the scope of the registration of the provider.
- The registered training provider must not be an associate of a small business or small business.
- The expenses must be deductible.
- The training enrolment must be on or after 7:30 pm, March 29, 2022.
The training must be a necessary cost of operating a business to make money. That is, there must be a connection between the training given and the way the company generates revenue.
The amount that is charged by the training organisation would be deductible. In some situations, it might include incidental costs such as books and manuals. Some exclusions will apply, such as on-the-job or in-house training and expenses on external training courses for persons apart from employees. The training boost is not for:
- Partners in partnership, sole traders, or independent contractors
- Business associates such as a partner, relative, or spouse of an entity person, a trustee of a trust that is beneficial for a person and a company that is influenced by a person.
For instance:
Cockablue Pets Pty Ltd is a small business entity that runs a veterinary centre. The business employed new employees to help with the job throughout the centre. The employee has some experience in animal studies and is interested to educate to become a veterinary nurse. The employee gets paid $3,500 (GST exclusive) by the business to conduct external training in veterinary nursing. The registered training provider offers training that includes veterinary nursing.
The calculation of the bonus deduction is done as 20% of the 100% of the number of expenses that can be deducted under a provision of the taxation law. In this case, under section 8-1 of the ITAA 1997, $3,500 is deductible as a business operating expense. Supposing the other eligibility criteria for the bonus deduction are satisfied, the calculation for the bonus deduction is done as 20% of $3,500 which is $700.
In this example, $700 is the bonus deduction available. It doesn’t mean that the business entity will get $700 cash from the ATO, but the business can minimise its taxable income by $700. If the business has a positive amount of taxable income for the year and is liable to a 25% tax rate, then the net impact is mitigation in the business’s tax liability of $175. It means that the company will produce fewer ranking credits which could mean more tax to be paid when the company pays its profit as dividends to stockholders.
Tax Suspension for Double Taxation of Indian Technical Support
The tax system enables Australia to tax payments made by an Australian customer relating to technical services offered by an Indian firm, even if the services are offered remotely. This is because of the wording included in the double tax agreement between India and Australia.
Under this agreement reached in relation to the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA), these payments will not be taxed in Australia. The typical categories of services that are likely to be covered by changes include:
- Architectural services
- Engineering services
- Computer software development
The changes in tax rules are in the consultation phase, not yet law. If performed, it will apply after they get Royal Assent, supposing the AI-ECTA has been introduced into force.
Getting Collectibles Inside Your SMSF
Most often, customers with self-managed superannuation funds (SMSF) ask what assets the SMSF can get.
Why?
To be compliant, your fund should be kept for offering retirement advantages to members, or their dependents if, before retirement, a member dies. If the collectible doesn’t meet this purpose, then you have a problem. For instance, you suppose to get vintage cars. The question to ask is: is the acquirement a feasible investment or do simply members want to own vintage cars? Does the finance ‘stack up’ concerning other forms of investments or establish or save retirement savings of members?
The management of the collectible after the acquisition is also covered by the sole purpose test. The asset cannot be used or enjoyed in any way by the members (or their associates) because it is solely for the member’s retirement benefits. This implies:
- Collectible’s storage can’t be shown at their office or the trustee’s residence. According to the ATO, ‘you can store (but not show) collectibles and personal use assets at a residence owned by a trustee offered it is not their private residence. These assets can’t be shown because it implies that they are being utilised by the party. For instance, if your SMSF makes an investment in artwork, then it can’t be hung on the business property of a related party where clients and employees can see it.’
- Renting or usage of collectibles can be started with an unrelated party.
- The collectible should contain its own insurance policy owned by the SMSF. The insurance policy must be in position within 7 days of acquirement.
- Similar to all other assets, if a related party buys a collectible, then it must be sold at market value. Collectibles need an eligible independent valuation if it is sold to a related party.
It means you are not allowed to stay in a holiday home that is owned by your SMSF, you are not allowed to drive a vehicle owned by the SMSF, and you are not allowed to enjoy artwork owned by the SMSF. Additionally, an audit is likely to be conducted on those Penfolds Grange bottles that the SMSF owns because they should have been carefully stored to avoid breakage (wink, wink).
An SMSF Investment Strategy
An SMSF investment plan should show the strategy the trustees have for a fund and the investment they selected to hold. There should be a reason why certain assets will be obtained (or sold) and how these choices satisfy the retirement goals of the members. It is crucial that your investment strategy is in line with these kinds of investments and explains how the asset fits into the strategy if your SMSF is considering buying collectibles. This is crucial if the collectible(s) will dominate the asset types, liquidity, and diversity held by the fund.
A common question is, can my SMSF buy, suppose artwork, from a related party or member of the fund? The answer to this question is no. SMSFs can’t buy assets from related parties, apart from listed shares and business real property. However, the SMSF could sell the asset to a member only if the transaction is at arm’s length and an independent valuation confirms the item’s market worth, or it might transfer the artwork to a member as an in-specie lump sum payment if the member satisfies a condition of release.