In early September, the Treasury released draft legislation that will introduce a Skills and Training Boost and a Technology Investment Boost tax incentive. These incentives will support businesses and address skill shortages in the workforce.

The initiatives will allow small and medium businesses (SMEs) with an aggregated turnover of less than $50 million to deduct 20% in addition to existing available deductions in relation to their skills and training as well as digital operations. The measures were first announced by the former government in the 2022 Budget, and will result in the incentives being backdated from 29 March 2022.

SKILLS & TRAINING BOOST

The Skills and Training Boost will support SMEs to build a better-trained workforce and increase productivity. This will help combat skills shortages by upskilling existing staff or training new staff.

Businesses could be encouraged to take on less-skilled employees who may need external training to develop their skills and enhance their productivity.

The tax incentive as per the draft legislation is available until 30 June 2024 and will be generally claimed in the income year in which the expenditure is incurred, but special rules will apply for early and late balancers.

The bonus deduction is available to eligible small businesses that incur expenditure which meets the following criteria:

• Expenditure must be for training employees, either in-person in Australia, or online;
• Expenditure must be charged, directly or indirectly, by a registered training provider and be for training within the scope (if any) of the provider’s registration;
• The registered training provider must not be the small business or an associate of the small business;
• Expenditure must already be deductible under the taxation law;
• Expenditure must be incurred within a specified period on 29 March 2022 and 30 June 2024; and
• Expenditure must be for the provision of training, where the enrolment or arrangement for the provision of the training occurs at or after 7.30 pm on 29 March 2022.

EXAMPLE AS PER EXPOSURE DRAFT EXPLANATORY MATERIALS:

Cockablue Pets Pty Ltd is a small business entity that operates a veterinary centre. The business recently took on a new employee to assist with jobs across the centre. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 (GST exclusive) for the employee to undertake external training in veterinary nursing. The training is delivered by a registered training provider, whose scope of registration includes veterinary nursing. The bonus deduction is calculated as 20 percent of 100 percent of the amount of expenditure that can be deducted under another provision of the taxation law. In this case, the full $3,500 is deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction is calculated as 20 percent of $3,500, that is, $700.

TECHNOLOGICAL INVESTMENT BOOST

The Technology Investment Boost supports SMEs to take advantage of digital technologies. This will allow SMEs to respond to customer demands, remain competitive, and build resilience to changes in economic conditions.

SMEs will have access to a 20% bonus deduction for eligible digital operations expenditure incurred on business expenses and depreciating assets up to a maximum bonus deduction of $20,000 per income year or specified time period.

The new tax incentive as per the draft legislation is available until 30 June 2023.

To be eligible for the bonus deduction:

• The expenditure must be eligible for a deduction under another provision of the taxation law;
• The expenditure must be incurred between 7:30 pm on 29 March 2022 and 30 June 2023;
• If the expenditure is on a depreciating asset – the asset must be first used or installed ready for use by 30 June 2023; and
• Expenditure must be incurred wholly or substantially for the purposes of an entity’s digital operations or digitising the entity’s operations.

Expenditure on digital operations or digitising operations may include, but is not limited to, business expenditure on:

• 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; and
• E-commerce – supporting digitally ordered or platform-enabled online transactions.

Exclusions

Some types of expenditure are ineligible for the bonus deduction even where they would otherwise meet the requirements. These are:

• Salary and wage costs;
• Capital works costs can be deducted under Division 43 of the ITAA 1997;
• Financing costs;
• Training and education costs; and
• Expenditure that forms part of, or is included in, the cost of trading stock.

EXAMPLE AS PER EXPOSURE DRAFT EXPLANATORY MATERIALS:

Claiming the bonus deduction for a depreciating asset where Temporary Full Expensing applies: A Co Pty Ltd (A Co) is a small business entity. On 15 July 2022, A Co purchased multiple laptops to allow its employees to work from home. The total cost was $100,000 (GST-exclusive). The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use. As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of a capital expense.

A Co can claim the full purchase price of the laptops ($100,000) as a deduction under temporary full expending in its 2022-23 income tax return. It can also claim the maximum $20,000 bonus deduction in its 2022-23 income tax return.

Claiming the bonus deduction for a depreciating asset where the entity claims depreciation deductions over a number of years:

As above but in this example B Co has made the choice to opt-out of temporary full expensing and instead will claim depreciation deductions for the decline in value of the laptops over their effective life under the uniform capital allowance rules in Division 40 of the ITAA 1997.

In its 2022-23 income tax return, B Co can claim a depreciation deduction for the decline in value of the laptops between 19 July 2022 and 30 June 2023. It can also claim the bonus deduction calculated on the entire amount of eligible expenditure ($100,000). This results in a maximum $20,000 bonus deduction. Depreciation deductions that B Co may be able to claim in 2022-23 and later income years are not altered by the bonus deduction.

Consultation is open on both draft legislation until 19 September 2022. The Treasurer states that legislation is expected to be introduced into Parliament this year.

These measures are short-term “boosts” with limitations and exclusions that need to be considered before committing to the expenditure.

Please consult with your advisor prior to implementing these measures.