As the 2023 financial year ended, the Treasury Laws Amendment (2022 Measures No. 4) Act 2023, passed on June 22 2023 and received Royal Assent on June 23, 2023, introducing the tax deduction boosts for small businesses.
These boosts, applicable to businesses with annual turnover under $50 million, allow for a 20% bonus deduction on qualifying expenditures. Below, we explain the rules and implications.
Eligibility
To qualify for the small business technology investment boost, your business must adhere to the standard aggregated annual turnover rules, now with an increased $50 million threshold. The expenditure needs to meet the following criteria:
- It must already be deductible under taxation law.
- It should have been incurred between 7:30 pm AEDT on March 29, 2022, and June 30, 2023.
- If the expenditure pertains to a depreciating asset, the asset must be first used or installed ready for use for a taxable purpose by June 30, 2023.
What you can claim
Eligible expenditure may include, but is not limited to, business expenditure on:
- digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, 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, including web page design
- e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth
- cyber security – cyber security systems, backup management and monitoring services.
In detail, you can claim a tax deduction for the cost of digital products used in running your business.
There are two types of expenses you can claim:
- operating expenses
- capital expenses.
The type of expense determines when you claim your deduction.
Operating expenses
Operating expenses are the expenses you incur in the everyday running of your business.
Examples include:
- internet service provider fees
- software subscription fees (for example, accounting, cybersecurity, point of sale, learning, job, and client management software)
- cost of running a website (for example, site maintenance that preserves its character)
- file sharing services
- cloud storage
- lease payments.
You claim most operating expenses as a tax deduction in the year you incur them.
Capital expenses
Capital expenses are either:
- the expense of a depreciating asset – including the amount you paid for the asset and the expense of transporting and installing it
- an expense associated with establishing,
replacing, enlarging or improving your business.
Examples include:
- computers and computer accessories
- mobile phones and tablets
- connectivity boosters
- cameras
- point of sale machines
- in-house software
- cost of acquiring or developing a website.
You generally claim capital expenses over time, reflecting the asset’s depreciation (decline in value)
Where the expense is partly for private purposes, the bonus deduction can only be applied to the business-related portion.
Caps and limits
There’s an annual cap of $100,000 for eligible expenditures, with a $20,000 cap per year for the bonus deduction. The maximum bonus deduction for a business is $40,000 overall.
For businesses with a 2022–23 income year starting before July 1, 2022, known as “early balancers,” the cap rules differ:
- A maximum bonus deduction of $20,000 can be claimed between March 29, 2022, and the end of the 2022–23 income year.
- From the start of the 2023–24 income year until June 30, 2023, another maximum bonus deduction of $20,000 can be claimed.
Expenses not eligible for the boost include:
- Salary and wages
- Capital works costs
- Financing costs
- Training or education costs (may qualify for the Small Business Skills and Training Boost)
- Expenses form part of trading stock costs.
Need your business tax compliance assessed to see whether you qualify for the additional 20% bonus, take action today and schedule a consultation with us here.
