Small Business Technology Investment and Training Tax Boost Explained
Small businesses are inherently strategic, and part of the strategy, especially in today’s interconnected world, is to make good technology decisions. Thanks to technology, there’s now a level playing field between small and large companies, allowing for an easier way to obtain a global reach for customers, employees, and new hires.
Numerous small firms have seen positive outcomes from digitisation. And with the help of Small Business Technology Investment Boost, along with Skills and Training Boost from the government, SMBs have gained a big advantage to improve their performance and presence whilst strengthening their digital economy.
Small Business Technology Investment Boost
Small businesses face stiff competition and often have limited resources. Most crucially of all, it’s pretty tricky for small firms to invest in technologies that could save time and money whilst presenting opportunities for growth and innovation. Thankfully, the Australian government offers a hand to small businesses through grants, incentives, and other programmes. One is the Small Business Technology Investment Boost.
Part of the 2022-23 Budget of the then Australian Government, the aforementioned small business boost was announced on 29 March 2022. Although still yet to be enacted as law at the time of writing, the measure covers businesses with an aggregated yearly turnover of less than $50 million. The gist of the boost is that small businesses will receive an additional deduction of 20% on all qualified expenses relating to their digital adoption. These expenses include:
- Cyber security systems
- Portable payment system and hardware
- Cloud-based subscription services
The boost is subject to the existing tax law, which does not restrict businesses from deducting ineligible expenditures to benefit from the additional 20% deduction. There still needs to be a comprehensive list of eligible expenses under this measure, but you can use this list as a guide to know what you can and cannot claim.
However, a few requirements are already in place:
- Only small businesses with less than $50 million aggregated annual turnover will qualify for the investment boost.
- A $100,000 cap is imposed on the total technology expenditure for every approved income year. With the existing tax law, however, businesses are allowed to continue deducting expenses over the capped amount.
- Costs incurred starting 7:30 PM AEDT upon the announcement of this measure until 30 June 2023 are qualified.
The exposure draft legislation states that special rules should be anticipated and will apply to bonus deduction claims in tax returns. These rules will be based on the balancing date of a small enterprise.
Small Business Skills and Training Boost
Along with the Small Business Technology Investment Boost, the Small Business Skills and Training Boost was also introduced on 29 March 2022. The same requirements apply, including an aggregated annual turnover of less than $50 million. This particular measure will run until 30 June 2024. It will allow businesses to deduct an additional 20% from costs incurred on specific employee training courses.
Here’s how it works. For every $100 a small business spends to train and upskill its employees, they qualify for a $120 tax deduction. This deduction aims to help firms have a more productive and competitive staff.
This tax boost could not have come at a better time. Numerous businesses are concerned about the great resignation, which has brought about critical skill shortages in different industries. Retention rates are lower, and companies find it a significant challenge to keep up with demand.
One issue is the cost of training and onboarding new employees. That’s why the Skills and Training Boost is welcomed by many enterprises, especially smaller ones with limited budgets. When used wisely, this tax deduction may help with staff retention whilst creating the much-needed expertise that can assist in growing the Australian economy.
With the added 20% bonus tax deduction, amounting to a total of 120%, small businesses can have additional resources for training employees. However, there is a catch. First, the training should not be performed internally. Employees should enroll with any external organisation, including online training, as long as it is a company registered within Australia.
The bonus deduction for training does not apply to sole traders and partners in a partnership. Independent contractors cannot apply for either boost. These entities are not viewed as “employees” of the business, as stated explicitly in the explanatory memorandum for the draft legislation.
Related Article: Essential Guide to the R&D Tax Incentive 2022
Actions to Take
Two exposure drafts on the boosts have been issued by the Federal Government, which were released for consultation until 19 September 2022. Although the deadline has passed, the boosts have not been approved. However, the bill is expected to be introduced into parliament once the consultation has been completed. Once approved, the boosts will become law. We are currently not there yet, but it appears that we are one step closer.
So, while waiting, here are some things you may want to do:
- Review your expenditure from 29 March 2022 to 30 June 2022. Determine if there are any costs eligible for the deduction. If you have found any, make sure that you document them and have them noted in your 2023 tax return.
- Some businesses create a separate expense account in their chart of accounts, which allows them to keep an eye on eligible costs for 2023. Do the same thing for 2024 for your training and skills boost documentation. Doing so will help you identify your expenses clearly, making claims much easier and faster at year-end.
- If there are eligible expenses, don’t be in a rush to add them to your tax return. Instead, certify that they have been incurred for employees. To be more specific, the relevant employee should be recorded on your business payroll. At the same time, the appropriate payroll data should be lodged through Single Touch Payroll for that specific employee.
- Review your current programs that can help upskill your staff for skills and training tax boost. Consider whether some areas require additional training. If so, we recommend that you take the necessary steps to undertake the training before 30 June 2024, which may qualify you for the bonus deduction.
Because the tax deductions are not laws yet, please take the above information as a guide. We highly recommend that you seek the advice of a competent business advisor or accountant before you start spending on employee training or new technology to understand what your small business is eligible for. Alternatively, you can also contact us for any business system integration needs to give your business a digital edge.