Is this the one-off bonus tax deduction Australia had to have after COVID?

Draft legislation may soon become law that will make it easier for small businesses to recoup some of the cost of the investments they make in their employees and digital operations through claiming an additional 20% bonus deduction.

What happened?

On 29 August 2022 the Government released draft legislation about a proposed 20% bonus deduction for small businesses with an aggregated turnover of less than $50 million, that incur expenditure to:

1. train and upskill their employees through external providers registered in Australia in the period between 29 March 2022 and 30 June 2024 (Skills and Training Boost); and
   
   
2. improve their digital and tech capacity in the period between 29 March 2022 and 30 June 2023 (Technology Investment Boost).

It is noted that the proposal is not yet law and this information piece only outlines some interesting aspects of this proposal that may or may not become law in its current form.

How does this affect you?

If you are a small business with an aggregated turnover of less than $50 million that can claim a deduction for business expenses under the current rules, you may be able to claim this 20% bonus deduction.

The bonus deduction is limited to an amount of $20,000 per income tax year (or limited to expenditure of a maximum $100,000 GST exclusive) and the bonus deduction for expenditure incurred in the 2022 income tax year (i.e. incurred in the period between 29 March 2022 and 30 June 2022) will only be claimable when the 2023 income tax return is lodged. The time lag for claiming a 2022 bonus deduction is purely based on administrative reasons – ordinarily the bonus deduction can be claimed in the year the expense was incurred.

Note, there are different timing rules (not discussed here) for late balancers (i.e. entities with income years starting after 1 July) and early balancers (i.e. entities with income years starting before 1 July).

Any tricks and traps to consider?

Some tricks and traps when deciding whether bonus deductions would be available under the Skills and Training Boost are set out below.

Bonus deduction would be available for businesses if:

1. training is delivered by an external registered training provider (RTP) registered in Australia that is not an associate of the business (e.g. no deduction if spouse of business owner is in charge of the RTP); and
   
   
2. employees are enrolled for external training after 29 March 2022 (i.e. no bonus deduction if enrolled for external training before 29 March 2022 even if training is only delivered after 29 March 2022).

A bonus deduction would still be available even if the employees are not physically present in Australia when they are undertaking online training and a bonus deduction can also be claimed for costs incidental to the training (e.g. cost of books or equipment necessary for the training course charged by the RTP).

No bonus deduction would be available for businesses for:

• external training provided to non-employees of the business (e.g. sole traders, partners in a partnership or independent contractors);
  
  
• in-house or on-the-job training;
  
  
• training provided by a RTP that is not within the scope of the RTP’s registration at the time the expenditure is incurred; and
  
  
• costs such as commissions or fees added onto an invoice by intermediaries.

Some tricks and traps when deciding whether bonus deductions would be available under the Technology Investment Boost include the following:

A bonus deduction would only be available if there is a direct link between business expenditure and:

• digital enabling items (e.g. computers and telecommunications hardware and equipment, software, systems and services that form and facilitate the use of computer networks);
  
  
• digital media and marketing (e.g. audio and visual content that can be created, accessed stored or viewed on digital devices); and
  
  
• e-commerce (e.g. supporting digitally ordered or platform enabled online transactions).

A bonus deduction would not be available for:

• expenditure to develop in-house software; and
  
  
• expenditure that is not directly related to digital operations or digitising operations such as salary and wages, capital works, financing costs, training and educational costs (because such costs can be deducted under the Skills and Training Boost) and expenditure on trading stock.

How can Crowe help you?

The main type of taxpayers affected by these proposals are small businesses with aggregated turnover of less than $50 million, Australian RTPs (for the Skills and Training Boost) and technology businesses (for the Technology Investment Boost).

We will follow the progress of the draft legislation through Parliament and update you on any new developments.

If you have any questions regarding these two incentives, please contact your Crowe representative.