Tax deductions

The new 20% tax deductions on tech and digital skills training

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Tech upgrades and digital skills training have emerged as key points in the 2022-23 federal budget, thanks to two new tax deductions proposed by the Morrison government.

The Small Business Technology Investment Boost and the Small Business Skills and Training Boost provide participating businesses with an additional 20% tax deduction on eligible expenses.

The twin policies are designed to encourage small business investment, while preparing Australian SMEs to compete in an increasingly digital economy.

Here is a brief overview of twin policies.

What’s on offer?

Treasurer Josh Frydenberg said the policies will offer “bonus” tax deductions to companies that invest in new technology or in external digital skills training for staff.

The policies offer a 20% deduction on qualifying business expenses, in addition to the deductions already available to SMEs at tax time.

“For every hundred dollars a small business spends training its employees, it will get a tax deduction of $120,” Frydenberg told parliament on Tuesday evening.

The Small Business Technology Investment Boost and the Small Business Skills and Training Boost are open to companies with cumulative annual revenue of less than $50 million.

Under the Small Business Technology Investment Boost, relevant technology spending will be capped at $100,000 per year. Businesses will be free to claim expenses beyond this point as usual.

No spending limits are listed under Small Business Skills and Training Boost.

The federal government projects that the technology package will reduce tax revenue by $1 billion over the life of the policy. The training program is expected to reduce revenue by $550 million.

What can I claim?

The Australian Taxation Office (ATO) gives a good idea of ​​what small businesses are free to claim under the Technology Investment Boost.

Business expenses and impaired assets such as “portable payment devices, cybersecurity systems or subscriptions to cloud-based services” are all covered, the ATO said.

The budget documents suggest SMBs will be free to claim the cost of new laptops and next-gen websites, encouraging small businesses to build their tech capabilities.

Regarding the skills package, the budget documents state that “eligible external training courses will be required to be delivered to employees in Australia or online, and delivered by Australian registered entities.”

Although the Federal Government has not yet provided a full list of eligible providers, these training organizations will likely include RTOs registered with the Australian Skills Quality Authority and education providers listed by the Tertiary Education Quality and Standards Agency. .

What can’t I claim ?

The budget documents indicate that the 20% tax deduction for digital skills training applies to external courses for employees.

This means that company expenses for internal training are excluded.

It also suggests that sole traders, who improve their own digital skills via external training, will not be eligible for the 20% tax deduction.

When do these policies start and when should I claim?

Both policies took effect when Frydenberg began his budget speech.

Indeed, federal budget documents show that all relevant spending as of 7:30 p.m. AEDT on Tuesday March 29 can be claimed under the new regimes.

Policies have different end dates, mind you. The technical package is expected to last until June 30, 2023, while the training package will last until June 30, 2024.

To qualify for the bonus on purchases made between Tuesday evening and the end of the 2021-2022 fiscal year, small businesses must first file a claim for normal expenses.

The 20% bonus will only be applied to the 2022-2023 financial year, specifies the ATO.

The eligible expenses incurred during the 2022-2023 financial year are different. Small businesses will be free to “deduct the full 120% on your 2022-23 tax return,” the ATO said.

The 120% deduction will also be available as part of the skills package during the 2023-2024 financial year.

What else should I know?

Basically, legislation is needed for both packages to come into effect, which means bonus deductions are not a sure thing.

“These measures are not yet in effect,” the ATO said, putting an election-sized question mark over the two policies.

This fact explains why eligible expenses made before June 30, 2022 will only benefit from the deduction of the 20% bonus for the 2022-2023 financial year.

What are business leaders saying?

CPA Australia, which has long called for increased government funding for digital upgrades, celebrates the new measures.

“CPA Australia research shows that Australian small businesses have one of the lowest levels of digital capability in the Asia-Pacific region,” said Dr Jane Rennie, CPA Australia’s chief external officer.

“Increased investment in technology and increased skills and training are welcome. These two programs go hand in hand and will help make Australia one of the top 10 digital economies.

Terrence Teh, Chief Strategy Officer at Pitcher Partners, shared his optimism.

“These incentives should motivate companies to explore, adopt and integrate digital capabilities, particularly around subscription technology that can help with e-commerce, customer intelligence and supply chain management,” did he declare.

But the packages could be improved by extending their reach, Rennie added.

“To have a greater impact, the increase in technology investment must go beyond 2023,” she said.

“Skills building and training should be extended to independent traders and the range of training providers should be expanded.”