In depth dive: 120% technology and skills ‘boost’ deduction

The 120% skills and training, and technology costs deduction for small and medium business have passed Parliament.  This in depth dive will help explain how to maximise your deductions.

Almost a full year after the 2022-23 Federal Budget announcement, the 120% tax deduction for expenditure by small and medium businesses (SME) on technology, or skills and training for their staff, is finally law.  But there are a few complexities in the timing - to utilise the technology investment boost, you had to have purchased the technology and when it comes to acquiring eligible assets, installed it ready for use by 30 June 2023; that’s just seven days from the date the legislation passed Parliament.

Who can access the boosts?

The 120% skills and training, and technology boosts are available to small business entities (individual sole traders, partnership, company or trading trust) with an aggregated annual turnover of less than $50 million.  Aggregated turnover is the turnover of your business and that of your affiliates and connected entities.

$20k technology investment boost

The Technology Investment Boost provides SMEs with a bonus deduction for expenses and depreciating assets for digital operations or digitising from 7:30pm (AEST) on 29 March 2022 until 30 June 2023.

You ‘incur’ an expense when you are in debt for it; this might be a tax invoice or it might be a contract where you are legally liable for the cost.

For depreciating assets, like computer hardware, there is an extra step.  The technology needs to have been purchased and installed ready for use.  For example, if you ordered 10 computers, you need to have received the computers and had them set up ready to use by at least 30 June 2023. Ordering them on 29 June won’t be enough to claim the boost if you did not receive them.

The types of expenses that might be eligible for the technology boost include:

• 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; or
• Cyber security - cyber security systems, backup management and monitoring services.

The technology also must be “wholly or substantially for the purposes of an entity’s digital operations or digitising the entity’s operations”.  That is, there must be a direct link to your business’s digital operations.  For example, claiming the drone you bought at say Christmas 2022 won’t be deductible unless your business is, for example, a real estate agency that needed a drone to take aerial images of client homes to market on their website.  The expense needs to relate to how the business earns its income, in particular its digital operations.

Repair and maintenance costs can be claimed as long as the expenses meet the eligibility criteria.

Where the expenditure has mixed use (ie. partly private), the bonus deduction applies to the proportion of the expenditure that is for business use.

There are a few costs that the technology boost won’t cover such as costs relating to employing staff, raising capital, construction of business premises, and the cost of goods and services the business sells.  The boost will not apply to:

• Assets that you purchased but then sold within the relevant period (ie. on or prior to 30 June 2023).
• Capital works costs (ie. improvements to a building used as business premises).
• Financing costs such as interest expenses.
• Salary or wage costs.
• Training or education costs, that is, training staff on software or technology won’t qualify (see Skills and Training Boost below).
• Trading stock or the cost of trading stock.

Let’s look at the example of A Co Pty Ltd (A Co) that purchased multiple laptops on 15 July 2022 to help its employees to work from home.  The total cost was $100,000.  The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use.

As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of a capital expense. A Co can claim the cost of the laptops ($100,000) as a deduction under the temporary full expensing in its 2022-23 income tax return.  It can also claim the maximum $20,000 bonus deduction in its 2022-23 income tax return.

The $20,000 bonus deduction is not paid to the business in cash but is used to offset against A Co’s assessable income.  If the company is in a loss position, then the bonus deduction would increase the tax loss.  The cash value to the business of the bonus deduction will depend on whether it generates a taxable profit or loss during the relevant year and the rate of tax that applies.

The good news for many eligible businesses is that your technology subscriptions and other products you use in your business might qualify for the boost.

The boost is claimed in your tax return with the extra 20% sitting on top your normal claim.  That is, however the way the expense or asset is claimed (immediately or over time), the bonus 20% applies in the same way.

The Skills and Training Boost

The Skills and Training Boost gives you a 120% tax deduction for external training courses provided to employees. The aim of this boost is to help SMEs grow their workforce, including taking on less-skilled employees and upskilling them using external training to develop their skills and enhance their productivity.

Sole traders, partners in a partnership, independent contractors and other non-employees do not qualify for the boost as they are not employees.  Similarly, associates such as spouses or partners, or trustees of a trust, also do not qualify.

As always, there are a few important conditions to consider, including:

• Registration for the training course had to be from 7:30pm (AEST) on 29 March 2022 until 30 June 2024. If an employee is part the way through an eligible training course, enrolments in courses or classes after 29 March 2022 are eligible, not before.
• The training needs to be deductible to your business under ordinary rules. That is, the training is related to how the business earns its income.
• A registered training provider needs to charge your business (either directly or indirectly) for the training (see What organisations can provide training for the boost).
• The training must be for employees of your business and delivered in-person in Australia or online.
• The training provider cannot be your business or an associate of your business.         

Training expenditure can include costs incidental to the training, for example, the cost of books or equipment necessary for the training course but only if the training provider charges the business for these costs.

Let’s look at an example where Animals 4U Pty Ltd is a small entity that operates a veterinary centre.  The business recently took on a new employee to assist with jobs across the centre.  The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse.  The business pays $3,500 for the employee to undertake external training in veterinary nursing.  The training meets the requirements of a GST-free supply of education.  The training is delivered by a registered training provider, registered to deliver veterinary nursing education.

The bonus deduction is calculated as 20% of the amount of expenditure the business could typically deduct.  In this case, the full $3,500 is deductible as a business operating expense.  Assuming the other eligibility criteria for the boost are satisfied, the bonus deduction is calculated as 20% of $3,500 - that is $700.

In this example, the bonus deduction available is $700.  That does not mean the business receives $700 back from the ATO in cash, it means that the business is able to reduce its taxable income by $700.  If the company has a positive amount of taxable income for the year and is subject to a 25% tax rate, then the net impact is a reduction in the company’s tax liability of $175.  This also means that the company will generate fewer franking credits, which could mean more top-up tax needs to be paid when the company pays out its profits as dividends to the shareholders.

What organisations can provide training for the boost?

Not all courses provided by training companies will qualify for the boost; only those charged by registered training providers within their registration.  Typically, this is vocational training to learn a trade or courses that count towards a qualification rather than professional development.

Qualifying training providers will be registered by:

• Tertiary Education Quality and Standards Agency (search the register – includes States and Territories)
• Australian Skills Quality Authority (ASQA)
• Victorian Registration and Qualifications Authority (search the register)
• Training Accreditation Council of Western Australia

While some training you might want to have engaged might not be delivered by registered training organisations, there is still a lot out there, particularly the short-courses offered by universities, or the flexible courses designed for upskilling rather than as a degree qualification.  If you have recently completed performance reviews for staff and training is part of their development pathway, it might be worth exploring.

Important: 1 July 2023 wage increases

For employers, incorrectly calculating wages is not portrayed as a mistake, it’s “wage theft.” Beyond the reputational issues of getting it wrong, the Fair Work Commission backs it up with fines of $9,390 per breach for a corporation. In 2021-22 alone, the Fair Work Ombudsman recovered $532 million in unpaid wages recovered for over 384,000 workers.

On 1 July 2023, award rates of pay and the National Minimum Wage increased by 5.75%.

It is critically important that all employers review their payroll systems and ensure they are applying the correct rates and Awards.

The National Minimum Wage applies to workers not covered by an Award or registered agreement. From 1 July 2023, the National Minimum wage has increased to $23.23 per hour ($882.80 per week for a full-time employee working a standard 38 hours week).

For casuals, the minimum wage including the 25% casual loading is a minimum of $29.04 per hour.

For workers under an Award, adult minimum award wages increase by 5.75% applied from the first full pay period on or after 1 July 2023. Proportionate increases apply to junior workers, apprentice and supported wages.



In addition, the superannuation guarantee increased from 10.5% to 11% on 1 July 2023.

If the employment agreement with your workers states the employee is paid on a ‘total remuneration’ basis (base plus SG and any other allowances), then their take home pay might be reduced by 0.5%. That is, a greater percentage of their total remuneration will be directed to their superannuation fund. For employees paid a rate plus superannuation, then their take home pay will remain the same and the 0.5% increase will be added to their SG payments.

Minimum annual payments for super income streams

The ATO reminds taxpayers that an SMSF must pay a minimum amount each year to a member who is receiving a pension that commenced on or after 20 September 2007 (ie. account based pensions).  If the minimum payment is not made by 30 June, this can result in adverse taxation consequences for the member.

In response to COVID-19, the government temporarily reduced superannuation minimum drawdown requirements for account-based pensions and similar products by 50% for the 2020, 2021, 2022 and 2023 financial years.

However, for the 2024 financial year, the 50% reduction in the minimum pension drawdown rate will no longer apply.

This means that, from 1 July 2023, when taxpayers calculate the minimum annual payment for their pension, the 50% reduction will not apply to the calculated minimum annual payment.

Know your private company loan arrangements before you lodge

The ATO advises taxpayers that, if they or an associate take a loan from their private company, they should not forget the requirements of repaying a private company loan for income tax purposes. Otherwise, they could find the loan treated as a Division 7A deemed dividend and included in their, or their associates', assessable income.

Taxpayers should consider the following in particular before lodging their private company tax return:

• ensure their loan is a Division 7A complying loan and make minimum yearly repayments; and
• they can’t borrow further money or assets from the same company, directly or indirectly, to make minimum yearly repayments or repay the loan – if they do, these payments may not be taken into account and could result in an assessable deemed dividend.

The ATO encourages taxpayers to check their loan repayments and, if they are concerned a payment will not be taken into account, they should speak to their registered tax adviser or contact the ATO. 

Proportional indexation of transfer balance caps from 1 July 2023

The ATO reminds taxpayers that, on 1 July 2023, the general transfer balance cap will be indexed. Individuals will have a personal transfer balance cap between $1.6 and $1.9 million, based on the highest ever balance of their transfer balance account between 1 July 2017 and 30 June 2023.

While indexation will occur on 1 July 2023, the ATO won't be displaying member’s updated personal transfer balance caps until 11 July 2023.

The ATO encourages all SMSFs to report any events that occurred prior to 1 July 2023 by 30 June 2023, to ensure member’s personal transfer balance cap calculations are based on correct and up to date information.

From 11 July, both members and their agents will be able to view the member’s personal transfer balance cap on the ATO’s website.

After 11 July 2023, a member's personal transfer balance cap will be recalculated if the ATO receives reporting of events effective prior to 1 July 2023.

Individuals can continue to report transfer balance cap information to the ATO between 1 July 2023 and 11 July 2023, however these will not be processed until after this period.

This means the ATO won't be able to issue or revoke excess transfer balance determinations it has sent to a member, or commutation authorities it has sent to a fund.

Processing of any reported events will continue as normal after 11 July 2023.

Masters course fees not deductible as self-education expenses

The Administrative Appeals Tribunal (AAT) has held that tuition fees for a public policy Masters course were not deductible, on the basis that the course did not relate to the taxpayer's work as a music teacher.

The taxpayer was a qualified teacher who specialised in teaching music. He had commenced a Masters Course at the University of Melbourne (the Masters course), and subsequently claimed a deduction for work-related education expenses in relation to the subject tuition fees. The taxpayer submitted that the Masters course would expand the breadth of subjects he could teach and therefore help him secure management positions.

However, the ATO disallowed the deduction as it was not satisfied that a real and direct connection existed between the study and the taxpayer's work.

The AAT confirmed the ATO’s decision that the fees were not deductible as self-education expenses, as the tuition fees were not incurred in gaining or producing the taxpayer's assessable income. The subjects undertaken by the taxpayer in the 2021 year, for which he was seeking to claim a deduction, "did not maintain or improve his skills or knowledge as either a music teacher or relief teacher".

The AAT also noted that, in incurring the claimed self-education expenses, the taxpayer’s intention “of being able to expand his ability to teach in subjects outside of music and to gain leadership positions relate to new employment or new income-earning activities and as such is not sufficient basis for those expenses to be deductible”.

Court penalises AMP $24 million for charging deceased customers

The Federal Court has found that four companies that are or were part of the AMP Group breached the law when charging life insurance premiums and advice fees from the superannuation accounts of more than 2,000 deceased customers.

The Federal Court ordered two of these AMP companies to pay a combined penalty of $24 million for the breaches.

Both AMP Life Limited and AMP Financial Planning admitted that they engaged in unconscionable conduct by deducting and/or failing to properly refund insurance premiums and advice fees respectively from superannuation members after being notified of their deaths. Both companies also admitted that they accepted insurance premiums and advice fees despite there being reasonable grounds for believing that they would not be able to supply the insurance or advice.

The Court also found all four AMP companies contravened their overarching obligations as Australian financial services licensees to act efficiently, honestly and fairly.