The Government is currently consulting on exposure draft legislation to introduce a Technology Investment Boost to assist small businesses in improving their digital and technology capacity, as previously announced in the March 2022 Budget.
The current draft legislation provides the following key points:
-
The proposed technology boost will provide small businesses (those with an aggregated annual turnover of less than $50 million) with a bonus 20% deduction for eligible expenditure on supporting digital adoption.
-
Expenditure up to $100,000 will be eligible for the boost, with the bonus deduction capped at $20,000 per year.
The draft explanatory material explains that expenditure on expenses and depreciating assets that support both digital 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
-
E-commerce - supporting digitally ordered or platform enabled online transactions
There is currently a lack of clarity around what constitutes eligible expenditure. Practical guidance from Treasury or, in due course, the ATO, will be required to confirm that the following examples of expenditure qualify:
-
New hardware, including monitors, keyboards, webcams etc.
-
Subscriptions for cloud based accounting software, productivity apps, programs and platforms, technical resources to replace hard copy publications and customer relationship management (CRM) software
-
Digital images for marketing purposes
-
Design or upgrade of a new or existing website
The following kinds of expenditure are specifically excluded from the boost:
-
Salary or wage costs
-
Capital works costs that are deductible under Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997)
-
Financing costs, including interest, payments in the nature of interest and expenses of borrowing
-
Training or education costs
-
Expenditure incurred that forms part of, or is included in, the cost of trading stock
Expenditure on depreciating assets
Eligible expenditure on expenses and assets will:
-
Exclude expenses incurred in the development of in-house software allocated to a software development pool
-
Exclude depreciating assets if a balancing adjustment event occurs to the asset while the entity holds it during the relevant period, unless the balancing adjustment event is an involuntary disposal - this smart integrity rule will prevent the claiming of the bonus
deduction by an entity that sells the asset within the relevant period
-
Include repairs and improvement costs for depreciating assets provided the costs are incurred during the relevant period
The bonus deduction will be equal to 20% of the cost of an eligible depreciating asset that is used for a taxable purpose, regardless of whether the asset is fully expensed under the temporary full expensing regime or a deduction is claimed for the asset’s decline in value over its effective life under the uniform capital allowance regime.
If the expenditure is for a mix of business and private use, the bonus deduction is available only to the extent of the proportion of the business expenditure. However, when claiming the bonus deduction for expenditure on a depreciating asset, it will be assumed the entity will continue to hold the asset throughout its effective life and will use the asset for a taxable purpose to the same extent that it does in the income year it first uses or installs the asset. This sensibly eliminates the need for subsequent adjustments to the boost should the taxable use of an asset change over time.
When is the technology boost claimed?
The boost is proposed to apply to eligible expenditure incurred from the budget announcement until 30 June 2023. Normal or late balancers will claim the bonus deduction in their 2023 tax return in respect of expenditure incurred between 7:30pm (AEDT) on 29 March 2022 and the end of their 2021–22 income year, as well as expenditure incurred in the 2022–23 income year.
It is expected that the enabling bill will be introduced into Parliament this year but this is unlikely to be before the end of October 2022, given the timing of the spring sitting days and the end of the public consultation period on 19 September 2022.
Please do not hesitate to contact a member of our Business Services Division if you require assistance.