TECHNOLOGY INVESTMENT BOOST (“TIB”)
Small businesses (with an aggregated annual turnover of less than $50 million) can deduct an additional 20% of the expenditure incurred for the purposes of business digital operations. This also extends to small businesses that are digitising its operations on business expenses and depreciating assets such as portable payment devices, cyber security systems or subscriptions to cloud based services.
An annual $100,000 cap on expenditure will apply to each qualifying financial year. Businesses can continue to deduct expenditure over $100,000 under existing law.
Background
The Technology Investment Boost and Skills and Training Boost Bill Treasury Laws Amendment (2022 Measures no 4) Bill 2022 received Royal Assent on 23 June 2023.
The TIB is a temporary measure aimed to support digital adoption by small businesses. Providing an incentive for small businesses to take advantage of digital technologies, which are “key to a stronger, productive and resilient economy”.
The new tax incentive applies to eligible expenditure incurred between 7.30pm on 29 March 2022 until 30 June 2023. For taxpayers whose income year commences on 1 July, the 20% bonus deductions (for the 2022 & 2023 income years) are both claimed in the 2023 income tax return.
The Detail
Entities eligible for the bonus deduction
The bonus deduction is available to entities that meet the definition of a small business entity under section 328-110 of the ITAA 1997. Section 328-110 defines a small business entity as an entity that carries on business with an aggregated turnover of less than $10 million. The bonus is also available to entities that would meet the definition of a small business entity under 328-110 of the ITAA 1997 if the reference to $10 million (turnover) was replaced by reference to $50 million.
Digital operations
Eligible expenditure must have a direct link with respect to the digital operation of the business. Expenditure must be incurred wholly or substantially for the purposes of an entity’s digital operations or digitising the entity’s operations.
There are four main business expenditure categories:
- 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 costs – audio and visual content that can be created, accessed, stored or viewed on digital devices;
- E-commerce – supporting digitally ordered or platform enabled online transactions; and
- Cyber security – cyber security systems, back up management and monitoring service
An entity’s expenditure on digital operations or digitising its operations is not necessarily limited to these categories.
Expenditure must not be excluded
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 which 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.
Relevant time period for eligible expenditure
An entity can only claim the bonus deduction for expenditure incurred from 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 to 30 June 2023.
For the purposes of calculating and claiming the bonus deduction for normal or late balancers, this timing is expressed as two time periods (‘the relevant time periods’):
- from 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 until the end of the entity’s 2021-22 income year (‘the first time period’); and
- from the start of the entity’s 2022-23 income year to 30 June 2023 (‘the second time period’)
Early balancers (i.e. if an entity’s 2022-23 income year begins before 1 July 2022) have different relevant time periods, which are as follows:
- from 7:30pm on 29 March 2022 until the end of the entity’s 2022-23 income year (‘the early balancer first time period’); and
- from the start of the entity’s 2023-24 income year to 30 June 2023 (‘the early balancer second time period’).
Calculating and claiming the bonus deduction
The amount of the bonus deduction is calculated as 20% of the total amount of eligible expenditure, up to a maximum bonus deduction of $20,000 per income year or specified time period.
Key Takeaway
- The Government’s goal in providing temporary tax incentives is to encourage small businesses to take advantage of digital technologies.
- This tax incentive provides eligible businesses to claim an additional 20% deduction on already 100% deductible items such as technology hardware and software used for business purposes.
If you would like to discuss the above matters further, please contact 9388 9744.