The 120% tax deductions for spending by small and medium firms (SME) on technology, or skills and training for their workers, is finally legislation, over a year after the 2022–23 Federal Budget release. There are some complications with the timeframe, though. You had to have purchased the technology and installed it in qualified assets before June 30, 2023, which is just seven days after the legislation was passed by the Parliament, in order to qualify for the technological investment bonus.
Who is eligible to access the boost?
Small business entities (individual sole traders, partnerships, companies, or trading trusts) with a total yearly turnover of less than $50 million are eligible for the 120% skills and training, and technology increases. The turnover of your company, as well as that of your affiliates and associated businesses, is known as aggregate turnover.
$20k Technology Investment Boost
From 7:30 pm (AEST) from March 29, 2022, through 30 June 2023, the Technology Investment Boost offers SMEs a bonus deduction for costs and depreciating assets for digital operations or digitising. If you are legally obligated to pay for an expense under a contract or a tax invoice, you are said to have “incurred” the debt.
There is an additional phase for depreciating assets, such as computer gear. The technology must be ready for usage after being installed and purchased. For instance, if you ordered 10 computers, you must have received them and prepared them for use by no later than June 30, 2023. If you don’t get them despite ordering them on June 29, you cannot get the bonus.
The following are different types of expenses that might be eligible for the technology boost:
- Digital enabling items – software, computer, telecommunications hardware, internet costs, services and systems that help with the use of computer networks.
- Digital media and marketing – visual and audio content can be created, stored, accessed or viewed on digital devices, including web page design.
- E-commerce –goods or services that support digitally ordered, portable payment devices, subscriptions to cloud-based services, digital inventory management, and suggestions on digital operations, such as suggestions about digital devices to support business continuity and growth.
- Cyber security – Backup management, cyber security systems, and monitoring services.
In addition to this, the technology must be used “completely or substantially for an entity’s digital operations or digitising the operations of an entity”. That is, there must be a direct connection between the online activities of your company. For instance, you won’t be able to deduct the drone you purchased, let’s say for Christmas 2022 unless your company is a real estate agency that needs a drone to take aerial pictures of client residences to promote online. The cost must be related to how the business generates revenue, particularly its online operations.
As long as the expenses meet the eligibility criteria, maintenance and repair costs can be claimed. Where the expense has mixed use, the bonus deduction is applied to the portion of the expenses incurred for business use.
The technology boost won’t pay for other expenses, like those related to hiring people, acquiring finance, building a business location, and the price of the goods and services the company offers. The advantages will not be provided to:
- Assets that you bought but sold within the relevant timeframe (e.g. on or before 30 June 2023).
- Capital works costs.
- Financing costs include internet expenses.
- Wage or salary costs.
- Education or training costs, i.e. providing training to staff on software won’t qualify.
- Trading stock cost.
Let’s consider the case of A Co Pty Ltd (A Co), which on July 15, 2022, made many laptop purchases to enable its workers to work from home. The whole thing cost $100,000. On July 19, 2022, the computers were delivered and promptly distributed to the workforce for usage only in official capacities.
A Co is qualified to deduct a capital expense for depreciation since it is the owner of the assets. Under the temporary full expensing, A Co. can deduct the $100,000 cost of the laptops on its 2022–23 income tax return. Additionally, it may deduct up to $20,000 in bonus expenses on its 2022–23 income tax return.
The $20,000 bonus deduction is applied to A Co’s assessable income rather than being paid to the company in cash. The bonus deduction would enhance the tax loss if the company is operating at a loss. Whether or not the business generated a taxable profit or loss during the relevant year, as well as the applicable tax rate, will determine the monetary value of the bonus deduction to the business.
Eligible businesses might be eligible for the boost for technology subscriptions and other products they use in their businesses. The 20% additional is added on top of your normal claim when you claim the increase on your tax return. In other words, the additional 20% applies regardless of whether the outlay or asset is claimed immediately or over time.
The Skills and Training Boosts
For providing external training courses to employees, the skills and training boosts provide you with a 120% tax deduction. The purpose of this boost is to help SMEs grow their workforce and provide them with external training to increase their skills and boost their productivity.
Independent contractors, partners in a partnership, sole traders, and other non-employees are not eligible for the boost because they are not employees. There are certain rules:
- Registration for the training course had to start from 7:30 pm (AEST) on 29 March 2022 until June 30, 2024. Enrolments after March 29, 2022, not before, are eligible if an employee is halfway through an appropriate training course.
- The training is required to be deductible to your business under common rules.
- A registered training provider is required to charge your business for the training.
- The training needs to be for employees of your business and provided in-person in Australia or online.
- The provider of training can’t be your business or a partner of your business.
Maximising the 120% Skills and Training ‘Boost’
Eligible training providers will be registered by:
- Tertiary Education Quality and Standards Agency
- Australian Skills Quality Authority (ASQA)
- Victorian Registration and Qualifications Authority
- Training Accreditation Council of Western Australia
It might be possible that registered training organisations may not deliver the training that you want to have engaged, but there is still so much out there, specifically the short courses provided by universities, or the flexible courses for increasing skills rather than as a degree qualification.
Increased Cents Per Kilometre
For motor vehicle expenses, the cents per kilometre have increased to 85 cents for the year 2023-24.
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