Tax Alert - Bonus 20% deduction for small business investment in skills and technology

Lowe Lippmann Chartered Accountants

Bonus 20% deduction for small business investment in skills and technology

The Government recently released draft legislation on the proposed small business boosts to provide tax incentives for small businesses to train and upskill their employees and improve their digital and technology capacity.

These incentives were originally announced by the previous Coalition Government as part of the Federal Budget 2022–23 and have now been released by the current Labor Government.

These incentives include two distinct components:

the small business skills and training boost (skills boost); and
the small business digital technology investment boost (technology boost).

The bonus 20% deduction for eligible expenditure under the skills boost and/or the technology boost will be available where a small business (with aggregated turnover less than $50 million) can satisfy the relevant eligibility criteria.

What is the skills boost?

The proposed skills boost will give eligible small businesses a bonus 20% deduction for eligible expenditure on external training provided to their employees.

The following eligibility criteria require that expenditure incurred on external training:

be delivered by registered providers to employees of the business;
must be within the scope of the registered provider’s registration at the time the expenditure is incurred;
provided either in person (with employees physically located in Australia) or online (where employees are not required to be physically located in Australia);
not provided by the small business claiming the bonus deduction or any of their associates;
not be on-the-job or in-house training;
not be for training persons who are not employees of a small business (ie. sole traders, individual partners in a partnership and independent contractors); and
be fully deductible under another provision of the tax law in the income year in which it is incurred.

The expenditure on external training can also include any associated costs such as books and equipment, but will not include fees charged by any entities not delivering the training sessions (ie. fees from an agent entity that helps connect businesses to training providers).

Registered providers of the external training sessions are required to be registered in Australia with at least one of four government authorities at the time the expenditure is incurred, including:

Australian Skills Quality Authority (or ASQA);
Tertiary Education Quality and Standards Agency (or TESQA);
Victorian Registration and Qualifications Authority; and
Training Accreditation Council of Western Australia.

We note that the draft legislation currently limits the external training to persons who are not employees of a small business and this has received criticism from the accounting industry as it excludes sole traders and partners in partnerships who historically have been responsible for their own training to maintain their skill sets. We expect this requirement will be reviewed and the ATO may provide some further guidance in this regard.

How is the bonus deduction for the skills boost claimed?

The skills boost is proposed to apply to eligible expenditure incurred from 29 March 2022 (when the Federal Budget 2022–23 was announced) until 30 June 2024.

A small business entity could claim the bonus deduction in their 2023 tax return for eligible expenditure incurred during both income years ending 30 June 2022 and 2023. The bonus deduction for expenditure incurred in the income year ending 30 June 2024 will be claimed in the 2024 tax return.

What is the technology boost?

The proposed technology boost will give eligible small businesses a bonus 20% deduction for eligible expenditure on supporting digital adoption, which may include (but not limited to) expenditure on expenses and depreciating assets that support digital operations or digitising operations:

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; and
repairs and improvement costs for depreciating assets.

We note that during the consultation period, before the draft legislation was released, there was significant feedback from the accounting industry asking for detailed clarification on what expenditure will and will not be eligible for the bonus 20% deduction. We anticipate that ATO guidance will follow the finalisation of the legislation to clarify this important issue.

There are certain types of expenditure which are expressly excluded from the technology boost, including:

Salary or wage costs;
Capital works costs that are deductible under Division 43 of the ITAA 1997 (which includes deductions for capital expenditure incurred in the construction of buildings and other capital works used to produce assessable income);
Financing costs, including interest and borrowing costs;
Training or education costs;
Expenditure incurred that forms part of the cost of trading stock;
Expenses incurred in the development of in-house software allocated to a software development pool; and
Depreciating assets if a balancing adjustment event occurs to the asset while the small business holds it, unless the balancing adjustment event is an involuntary disposal (which basically includes an assessable gain made when the proceeds from selling a depreciating asset exceed the written down value).

The bonus deduction under the technology boost will be capped to total expenditure up to $100,000, with the bonus deduction capped at $20,000 per year. Small businesses can continue to deduct expenditure over $100,000 under existing tax provisions.

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 includes mixed business and private use, the bonus deduction is available only to the extent of the proportion of the business expenditure. The business use (or taxable purpose) percentage applied in the first year the asset is used (or installed ready for use) will be applied here in all subsequent years for that asset.

How is the bonus deduction for the technology boost claimed?

The technology boost is proposed to apply to eligible expenditure incurred from 29 March 2022 (when the Federal Budget 2022–23 was announced) until 30 June 2023. We note the technology boost does not extend to the income year ending 30 June 2024, as it does for the skills boost.

A small business entity can claim the bonus deduction for the technology boost in their 2023 tax return (only), which includes eligible expenditure incurred during both income years ending 30 June 2022 and 2023.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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Practice Update – May 2026

May 4, 2026

Special Topic: Payday Super changes apply from 1 July 2026, act now to be prepared! The ATO has issued further guidance on Payday Super changes that apply from 1 July 2026. In particular, the ATO released a ‘Payday Super checklist for Employers’ ( click here ), which is a good summary of the tasks that should be completed before 1 July 2026, and now is the time to act. Understanding ‘qualifying earnings’ From 1 July 2026, employers will calculate super using ‘qualifying earnings’ ( QE ) instead of the current ‘ordinary time earnings’ ( OTE ). For many employers, the new concept of QE is broader than OTE, but it should not change the amount they need to pay for their employees. However, it may require updates to payroll software configuration and reporting. Employers should review and prepare to correctly map pay codes now to meet reporting obligations and ensure readiness when their updated payroll software is available. QE include the following payments: OTE (ie. payments for ordinary hours of work), including certain types of paid leave, allowances, bonuses and lump sum payments. There are no changes to what payments are considered OTE under Payday Super. For a full list of payments which are included within OTE – click here . All commissions paid to an employee. Salary sacrifice amounts that would qualify as QE had they not been sacrificed to superannuation. Earnings paid to workers who fall under the expanded definition of employee, including payments to independent contractors paid mainly for their labour. Some payments may fall into more than one category of QE, such as commissions, and those payments are covered only once to the extent of the overlap in categories. The total QE for a pay period is determined by aggregating all qualifying payments made to or for an employee on the relevant day, forming the basis for calculating superannuation guarantee ( SG ) contributions. Each payday, employers will need to report both year-to-date QE and superannuation liability for each employee through Single Touch Payroll ( STP ). Employers should confirm their updated payroll software has this reporting functionality built in. Understanding new timing requirements for super contributions From 1 July, employers are responsible for ensuring that super contributions reach super funds within 7 business days of the relevant payday , calculated on the QE amount. Super funds will have 3 business days (down from 20 days) to allocate or return contributions that cannot be allocated. There is currently no obligation for the Super fund to confirm that an employee contribution has been allocated successfully, however if 3 days have elapsed we can accept that the employee contribution has been processed correctly. A super payment only counts once it is received by the employee’s superannuation fund, not when it is submitted. Submitting on day seven may not allow enough time, and we note there is no extension for rejected payments - so employers must ensure there is enough time to correct any errors and for SG contributions to reach funds within the 7 business days. Understanding importance of testing payroll software before 1 July 2026 Prepare now, review your payroll system readiness, engage with payroll software providers and ensure the functionality for these new changes will be supported. It has been widely suggested that new payroll software functionality is tested and everything is running smoothly before 1 July. Note that super payments for pay cycles in July 2026 may be due before your final quarterly super payment is due on 28 July 2026 (ie. for the June 2026 quarter, being April to June). Contributions received on or before 28 July 2026 will reduce any super owing for the June 2026 quarter first . If there is any remainder, contributions will then be used under Payday Super. If you pay on time for the June 2026 quarter and Payday Super you do not risk incurring penalties. The ATO has provided an example of this issue ( click here ), and explains that if the employer pays the correct amount for the June 2026 quarterly payments and the first Payday Super payment (ie. for the first pay cycle in July, which could be weekly or fortnightly) is paid in full both contributions will be made on time. Understanding cash flow pressure Employers may have multiple super payments due during July 2026, including: super payments for each Payday (after 1 July 2026); plus the final quarterly super payment due 28 July, for June 2026 quarter (ie. April to June). Employers should review their expected pay cycles for July 2026 to understand the impacts of paying super each payday after 1 July 2026. Employers may consider setting aside additional funds to make sure they can meet their obligations. If cashflow permits, employers can pay the June 2026 quarter super on or before the first payday in July (ie. the first pay cycle in July, which could be weekly or fortnightly). If an employer can do this, your business will have: a more seamless changeover to the Payday Super system; and time to correct any rejected payments before the 28 July deadline. We recommend that all employers take actions as soon as possible to be best prepared for the Payday Super changes coming in from 1 July 2026. If you require assistance, please contact your Lowe Lippmann representative.

Practice Update – April 2026

April 12, 2026

Know when a new logbook is required Keeping a car logbook may be required to accurately calculate the business-use percentage of vehicle expenses (ie. fuel, registration, insurance and depreciation) for tax deductions. Taxpayers can keep the same logbook for their car for five years, but there are circumstances where they may need a new one during that period. Relying on a logbook that no longer represents a client's work-related travel may result in them claiming more, or less, than they are entitled to. A new logbook may be required when a taxpayer: moves to a new house or workplace — updating their residential or work address may then be necessary; or has changes to their pattern of use of the car for work purposes — checking that they are still doing the same role and routine may then be necessary. Taxpayers using the logbook method for two or more cars need to keep a logbook for each car and make sure they cover the same period. Clients who purchase a new car during the income year and want to continue relying on their previous car's logbook must make a nomination in writing. The nomination must be made before they lodge their tax return and state: they are replacing their original car with a new car; and the date that nomination takes effect. Taxpayers should remember that, if their employer provides them with a car or they salary sacrifice a car using a novated lease, they are not entitled to claim work-related car expenses using the logbook or cents per kilometre method, as they do not own the car. When claiming car expenses using the logbook method, taxpayers also need to keep various types of other records, including (among other things) odometer records for the start and end of the period they own the car, proof of purchase price, decline in value calculations, and fuel and oil receipts (or records of a reasonable estimate of these expenses based on odometer readings).

Practice Update – March 2026

March 2, 2026

$20,000 instant asset write-off extended The Government recently passed legislation to extend the $20,000 instant asset write-off for small businesses by 12 months to 30 June 2026. Taxpayers should note that if their business has an aggregated annual turnover of less than $10 million, they may be able to use the instant asset write-off ( IAWO ) to immediately deduct the business portion of the cost of eligible assets which cost less than $20,000. Eligible assets must basically have been first used (or installed ready for use) between 1 July 2025 and 30 June 2026. The $20,000 limit applies on a per asset basis, so taxpayers can instantly write-off multiple assets. The IAWO can be used for both new and second-hand assets (but some exclusions and limits apply).