Small Business Tax Incentives

This article details information surrounding newly legislated small business tax incentives which take effect from 29 March 2022 and run until 30 June 2023 for one incentive and 30 June 2024 for the other.

The Small Business Technology Investment Boost provides a bonus tax deduction for eligible businesses to assist with the digital operations, and to help digitise business operations, and runs from 29 March 2022 to 30 June 2023.

The Small Business Skills and Training Boost provides a bonus tax deduction for eligible businesses to participate in external training courses delivered by registered training providers and runs from 29 March 2022 to 30 June 2024.

Businesses eligible for these incentives include companies, sole traders, partnerships, Self-Managed Super Funds, and trading trusts.

Small Business Technology Investment Boost

For small businesses with less than $50m in turnover, this incentive allows for businesses to obtain a 20% bonus deduction (effectively claiming 120% of eligible expenses) for any eligible expenditure incurred to support their digital operations and to digitise their operations. This is for any expenses from 29 March 2022 through to 30 June 2022 and is capped at $100,000 of expenses per financial year applicable, meaning a bonus deduction of up to $20,000 per year.

These costs can include any expenses that are either immediately tax deductible, or depreciable assets, however if the item being claimed is a depreciable asset, it must be held and ready for use by 30 June 2023. Given the ability to claim a full-tax deduction for ordinarily depreciating assets (temporary full expensing) for small businesses which qualify for this incentive, unless a business elects not to claim a full deduction for certain assets, it would be expected that a depreciating asset would be fully depreciated on the depreciation schedule and relevant sections of the tax return, and then claim the bonus 20% deduction at the newly created section of the tax return.

Expenditure which falls under this incentive includes: computer and phone hardware and equipment, software, internet costs as well as systems and services which aid in the use of computer networks; digital media and marketing and web design; cyber security systems, backups and monitoring services; and anything relating to e-commerce goods and services.

For small businesses satisfying the eligibility criteria, it would be expected that most would be able to take advantage of this incentive, especially given the broad range of eligible expenses falling within this boost.

Small Business Skills and Training Boost

Like the Small Business Technology Investment Boost, the eligibility criteria for this incentive is quite similar. If business turnover is less than $50m, a bonus deduction of 20% is available for eligible expenditure between 29 March 2022, up until 30 June 2024. Again, this is capped at $100,000 of expenses per financial year, providing a maximum bonus deduction of $20,000 per eligible year.

Expenditure available under this incentive is for in-person or online training of employees of your business in Australia. However, the added criteria for expenditure to be eligible under this incentive is that the charge must be by a registered external training provider and cannot be a related business or yours or an associate of yours. An example of such expenditure would be first-aid training provided by a registered provider (such as St John Ambulance), or industry specific training, where the training provider is formally registered. This key item of eligibility means a little more work from your side to confirm whether a provider is in fact a registered training organisation.

How to claim

Although these two incentives were announced in March 2022, the legislation to allow for these boosts to be claimed only passed in late June 2023. As such, there has been much talk and speculation as to how businesses are to claim expenditure from 29 March 2022 through to 30 June 2022. There is no requirement to amend a 2022 tax return. Instead, the ATO is allowing a claim for the 2022 financial year and 2023 financial year boosts to be included in the 2023 income tax return.

The above simply means that eligible businesses would claim the ordinary deduction in the 2022 tax return, but then in the 2023 tax return, would be entitled to claim the bonus 20% deduction for eligible 2022 expenditure, plus the 120% deduction for eligible 2023 expenditure. For the Small Businesses Skills and Training Boost, which carries on for a further financial year, the 2024 financial year eligible expenditure will be claimed, along with the 20% boost in the 2024 tax return.

Conclusion

The above is a summary of the limited time-frame available to claim a bonus 20% tax deduction for eligible expenditure for small businesses when investing in skills and training for employees and technology and digitisation for their business operations. It is key to understand the eligibility criteria and the expenses available for such incentives when preparing financial accounts and tax returns for your business.

This information should provide valuable insight into a program, which even though it is available only for a finite period, will assist many small businesses in receiving additional tax deductions that either spend, or choose to invest in training and/or digitising in their business.