Technology Investment Boost
In the March 2022 Federal Budget, the Government announced that it will introduce a technology investment boost so that small businesses can take advantage of digital technologies. Eventually, the measure was introduced to Parliament in Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 in November 2022, with the Bill passing Parliament in June 2023. At a very high level, the technology boost offers qualified entities a bonus 20% deduction on top of the deduction that would otherwise be available for the expenses that have been incurred.
Various basic conditions need to be met to access the technology boost, such as:
- The entity is a small business entity (SBE) or would be an SBE if the turnover threshold was $50m for the year the expenses are incurred;
- The money is spent between 7.30 pm ACT time on 29 March 2022 and 30 June 2023;
- The expenses can be deducted under another provision; and
- The expense is incurred wholly or considerably for the purpose of the entity’s digital operations or digitising its operations.
Expenses on depreciating assets can be eligible for the boost, but some other issues must be considered when it is the matter of depreciating assets:
- if a balancing adjustment event occurs at the time of boost, the boost is not available unless it is related to the loss, compulsory acquisition, or destruction;
- the asset needs to be installed ready for use or used for a taxable purpose prior to 1 July 2023; and
- suppose the asset will continue to be used across its lifespan for the same purpose for which it was used in the year it was used for the first time or installed ready for use.
$50m Turnover Test
For an entity to be eligible for the boost it must be classified as a SBE in the year the expense is incurred, or it is an entity that would be classified as a SBE if the turnover threshold was $50m instead of $10m. An entity can meet the $50m aggregated turnover test in three ways:
- the aggregated turnover of the entity for the previous income year was less than $50m;
- the aggregated turnover of the entity for the current year is “likely” to be less than $50m, calculated as of the first day of the income year; or
- the aggregated turnover of the entity for the current year is less than $50m at the end of the income year.
To be eligible for the boost the expenses must be incurred wholly or substantially for the purposes of the entity’s digital operations or digitising the entity’s operations. The EM provides a non-exhaustive list of the types of expenditure that might be eligible for the boost:
- Digital enabling items – computer and telecommunications hardware and equipment, software, systems, internet costs and services that form and facilitate the use of computer networks;
- Digital media and marketing – audio and visual content that can be created, accessed, accumulated or viewed on digital devices, including web page design;
- E-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, digital inventory management, portable payment devices, subscriptions to cloud-based services, and suggestions on digital operations or digitising operations, such as suggestions regarding digital tools to support business continuity and growth; or
- Cyber security – backup management, cyber security systems, and monitoring services.
Additional ATO Guidance
For a particular cost to be eligible for the boost it must be spent wholly or substantially for the purpose of the client’s digital operations or digitising their operations. While there are some examples of costs that might be eligible in the explanatory materials accompanying the regulation and in an existing ATO fact sheet in this area, many practitioners are identifying that there are still significant areas of uncertainty. Identifying the difficulty in this area, the ATO provided some additional guidance and while it doesn’t offer a complete list of qualified costs, it does make some comments on certain expenses and confirms the following:
- It is worth noting that if a client subscribes to an accounting software platform for their business, it is considered within the scope of the boost.
- However, a multifunction printer and scanner are not eligible if their sole purpose is to make copies of paper documents. It can only be considered within the scope of the rules if it is used for scanning paper documents for digital use and storage.
- Apart from this, the ATO recommends using a simple indicator to determine if an expense qualifies for the boost – consider whether the business would have incurred the expense if it didn’t operate digitally.
Calculating and Claiming the Bonus Deduction
The bonus deduction for qualifying expenditures is calculated at 20%. However, this is limited to a maximum bonus deduction of $20,000 per income year. If an entity has a standard 30 June year-end, the boost can apply to expenditure incurred in part of the 2022 income year and across the 2023 income year.
- $20,000 is the maximum bonus deduction for incurred expenses in 2022; and
- The separate maximum bonus deduction is $20,000 for incurred expenditures in 2023.