In the ever-evolving business landscape, small businesses must continually adapt and innovate to remain competitive. Recognising the importance of digital adoption and skills development in driving business growth, the Australian Federal Parliament has introduced new tax incentives as part of the 2022-23 Budget. These incentives, known as the Small Business Technology Investment Boost and the Small Business Skills and Training Boost, aim to support small businesses in their journey towards digital transformation and workforce development.
Small Business Technology Investment Boost
The Technology Investment Boost allows small businesses with an aggregated annual turnover of less than $50 million to deduct an additional 20% of the expenditure incurred for the purposes of business digital operations or digitising its operations. This includes expenses on business and depreciating assets such as portable payment devices, cybersecurity systems, or subscriptions to cloud-based services.
To be eligible for this bonus deduction, businesses must meet the following criteria:
- The expenditure must have been incurred between 7:30 pm AEDT 29 March 2022 and 30 June 2023.
- If the expenditure is on a depreciating asset, the asset must be first used or installed and ready for use by 30 June 2023.
- An annual $100,000 cap on expenditure will apply to each qualifying income year. Businesses can continue to deduct expenditure over $100,000 under existing law.
The expenditure must be wholly or substantially for the entity’s digital operations or digitising its operations. This includes:
- 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.
Repair and maintenance costs can also be claimed as long as the expenses meet the eligibility criteria. If 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.
However, 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. The boost will not apply to:
- Assets that are sold while the boost is available
- Capital works costs under Division 43
- Financing costs such as interest expenses
- Salary or wage costs
- Training or education costs
- Trading stock or the cost of trading stock
Small Business Skills and Training Boost
The Skills and Training Boost allows small businesses with an aggregated annual turnover of less than $50 million to deduct an additional 20% of expenditure incurred for the provision of eligible external training courses to their employees by registered providers in Australia.
To be eligible for this bonus deduction, businesses must meet the following criteria:
- The expenditure must have been incurred between 7:30 pm AEDT 29 March 2022 and 30 June 2024.
These measures are not yet law, and businesses cannot claim the boosts until the law is enacted. If you intend to claim the small business technology investment or skills and training boost (bonus deduction), you can delay lodging your 2023 tax return until the law is enacted. Alternatively, you can lodge your return and claim your ordinary deduction for the technology investment or skills and training expenditure. Then, when the law is enacted, you amend your return to claim the 20% bonus deduction.
These new tax incentives present a significant opportunity for small businesses to accelerate their digital transformation journey and invest in their workforce. By strategically investing in digital technologies and employee training, businesses can enhance their operational efficiency, customer experience, and overall competitiveness. As always, it’s advisable to consult with a Chartered Accountant to understand how these incentives can be best utilised for your specific business needs.
Seizing the Opportunity
The Small Business Technology Investment Boost and the Small Business Skills and Training Boost represent a significant opportunity for small businesses to invest in their future. By taking advantage of these incentives, businesses can not only enhance their digital capabilities and workforce skills but also improve their bottom line by reducing their tax liability.
The Technology Investment Boost can help businesses upgrade their digital infrastructure, enhance their cybersecurity, and adopt new technologies that can improve efficiency and customer service. Meanwhile, the Skills and Training Boost can help businesses invest in their most valuable asset – their employees. By providing employees with the training they need to excel in their roles, businesses can improve productivity, enhance service quality, and retain top talent.
Planning for Success
While these incentives are generous, it’s important for businesses to plan their investments carefully. This includes ensuring that any expenditure meets the eligibility criteria and is incurred within the specified timeframes. Businesses should also consider their cash flow, as the cost of the investment must be paid upfront, with the deduction applied later in the tax return.
Furthermore, businesses should ensure that their investments align with their overall business strategy. For example, when investing in digital technologies, businesses should consider how these technologies can support their business goals and provide a return on investment. Similarly, when investing in training, businesses should consider how the training will enhance their employees’ skills and contribute to the business’s success.
Looking Ahead
As the business landscape continues to evolve, it’s clear that digital adoption and skills development will be key drivers of success for small businesses. By taking advantage of the Small Business Technology Investment Boost and the Small Business Skills and Training Boost, businesses can position themselves for success in the digital age.
As always, it’s advisable to talk to us when planning your investments and claiming these tax incentives.