Small Business to benefit from staff and digital investment

Chartered Accountants Australia and New Zealand (CA ANZ) is encouraging small businesses to act now if they want to benefit from a tax incentive to train their employees and digitise their business.

Legislation allowing a small business to deduct 120% of the cost of training their employees and 120% of the cost of digitalising their business passed Federal Parliament yesterday.

“With small businesses facing worker shortages, the incentive to train new and existing staff is a great initiative,” said Susan Franks, CA ANZ Senior Tax Advocate.

“The 120% deduction for training employees will apply in relation to expenditure incurred by a small business from 29 March 2022,” said Ms Franks.

Training boost

“Businesses should be aware however, that they must comply with some simple guidelines to qualify for the deduction and be mindful of the impact of the expenditure on their operations:

  1. You need to train employees – this incentive does not apply to sole traders, partners and independent contractors.
  2. Take care what training you choose – you could end up with a FBT liability if the training is not related to your employee’s role in your business.
  3. ‘In house’ or ‘on the job’ training does not qualify – the training must be provided by a recognised provider and be within the scope of their registration. Credentials can be checked at training.gov.au.
  4. In person training must be undertaken in Australia, but digital training can occur anywhere – and overseas employees can only be trained digitally.
  5. Consider your cash flow – a business needs to pay for training up front but the deduction for the cost of training will be in your tax return which is usually quite a while later.
  6. Plan ahead – this incentive is only available for a limited time.  You have until 30 June, 2024 to take advantage of it.
  7. If you need help to understand how the new incentive works, contact your Chartered Accountant.

Digitalisation boost

“Throughout the pandemic, nearly 9 in 10 Australian businesses adopted new technologies to improve their business continuity.

“With single touch payroll, e-invoicing, and director IDs, small businesses are being asked to do more and more digitally. To encourage digitalisation of small businesses, small businesses can now claim an extra deduction for the cost of digitalising their operations.

“It’s a win for small businesses who’ve already spent money digitalising their business this financial year but for those who haven’t, the window to act is very small. This 120% deduction only passed Federal Parliament yesterday, but small businesses looking to spend money on digitisation, only have until June 30, 2023 to take advantage of the incentive.

“Small businesses should also be aware; they can only claim the 120% deduction to digitise their business for up to a maximum of $100,000 of expenditure.”

CA ANZ tips regarding the digital incentive:

  1. Plan ahead – this incentive is only available for a limited time.  You have until 30 June 2023 to take advantage of it, and you need to ensure that equipment is installed ready for use before then, not just ordered.
  2. Think broadly – this incentive covers not only computers and software systems but also digital media and marketing content and e-commerce expenditure and repairs and maintenance of equipment.
  3. Some costs are excluded – e.g. salary and wages, financing costs, training costs (but don’t forget about the 120% training bonus) and trading stock.
  4. Private use does not count.  Deductions, including the new 120% deduction, can only be claimed for business use.
  5. Have a digitalisation plan – you need to show that the expenditure is wholly or substantially for the purposes of your digital operations or digitalising your operations.
  6. Consider your cash flow – the business needs to pay for the digitalisation up front but the deduction for the costs will be in your tax return which is usually quite a while later.
  7. If you need help on how the new incentive works, contact your Chartered Accountant.

 

Text by: Chartered Accountants Australia and New Zealand

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