10 October 2023

In exciting news for businesses, the Treasury Laws Amendment (2022 Measures No.4) Act 2023, received royal assent on 23 June, 2023. This legislation introduced the technology investment boost being a 20% bonus deduction aimed at incentivising investments in digital technology and the digitisation of business operations.

The 20% Bonus Deduction Explained

The technology investment boost offers eligible entities a 20% tax deduction bonus on qualifying expenditures, with an annual cap of $100,000 for eligible expenses. This means that qualifying businesses can potentially benefit from a maximum bonus deduction of $20,000 per income year.

The bonus deduction is claimed in the 2022/2023 tax year for both the 2022 and the 2023 tax years’ deductions.

 If the bonus deduction is available in both financial years, the overall maximum bonus deductions increases to $40,000 for the year.

Eligibility Criteria 

To qualify for this boost, entities must meet specific criteria:

• They must have an aggregated turnover of less than $50 million for the income year.
• Expenditures must already be deductible under the tax law.
• Expenditures must have been incurred between 7:30 pm AEDT on 29 March, 2022, and 30 June, 2023.

Qualifying Expenditures

The expenditures eligible for the investment boost must be primarily for the purpose of enhancing the business’s digital operations or digitising its overall operations.

The expenditure should have a direct link to the entity’s business operations. Here are examples of eligible items:

• Digital Enabling Items –  this includes computer and telecommunications hardware and equipment, software, internet costs, systems, and services that facilitate computer network usage.
• Digital Media and Marketing –  expenses related to audio and visual content that can be created, accessed, stored, or viewed on digital devices, including web page design.
• E-commerce –  goods or services that support digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services, and advice on digital operations or digitizing operations.
• Cyber Security –  costs related to cyber security systems, backup management, and monitoring services.

While this list is not exhaustive, a good guideline is to consider whether the expenditure would have been incurred if the business didn’t operate digitally. This approach allows for other eligible expenses, such as;

• advice on digitising the business,
• leasing digital equipment, and
• repairs/improvements to eligible assets that aren’t capital works.

GST Considerations and Depreciating Assets

For qualifying businesses registered for GST, the bonus deduction is calculated on the GST-exclusive amount of the expenditure.

If the expenditure pertains to a depreciating asset, the asset must have been used or installed ready for use before 1 July, 2023.

The bonus deduction is calculated based on the asset’s cost, regardless of the depreciation method. However, if the business sells the asset within the relevant period, the bonus deduction cannot be claimed for that expenditure.

Examples

To illustrate the application of the bonus deduction, consider these examples:

• A Pty Ltd purchased laptops for $132,000 GST inclusive which were delivered prior to 30 June 2023. The company, registered for GST, opted for the temporary full expense (TFE) for depreciation. It can claim a $20,000 bonus deduction (20% of the $100,000 cap) in its 2022-23 tax return, in addition to the $120,000 deduction under TFE in its 2022/2023 return.
   
• B Pty Ltd pays monthly subscription fees totalling $4,800 pa (GST exclusive) for a cloud service. In its 2022-23 tax return, it claims a total deduction of $6,000, including the 20% bonus deduction for 2022 and 2023. This is made up as follows:

Excluded Expenditures

The bonus deduction cannot be claimed for certain expenses, including salary and wages, capital works costs, financing costs, training, or education costs (which may be eligible for the small business skills and training boost), and expenses forming part of trading stock costs.

Can the Technology Boost apply to existing commitments or only new technologies?

While there’s limited guidance on what constitutes “digital operations”, the boost aims to help businesses adopt new technologies for efficiency, growth, and resilience.

The rules don’t mandate that expenses must be new or related to new technologies. Nor does it require to relate to projects to digitise after the commencement date.

The ATO clarified that subscriptions, whether old or new, can qualify if they relate to digital operations. For example, cloud accounting subscriptions and internet costs should qualify, as long as they meet basic conditions and are incurred during the specified period.

Therefore, the focus should be on when the expense is incurred, not its historical duration.

Next Steps

In preparing the 2023 tax return, now is the time for eligible businesses to explore the opportunities presented by the 20% investment boost deduction as well as the temporary full expensing, both limited to expenditure incurred by 30 June 2023 and where depreciable assets installed and ready or use by 30 June 2023.

When identifying a qualifying expenditure, ensure;

• There is a direct and strong link between the expenditure and your entity’s digital operations or digitising its operations.
• You have correctly calculated the entity’s aggregated turnover.
• You have correctly identified when the expenditure was “incurred” and have records to support this.
• That any depreciating assets which might qualify for the boost were used or installed ready for use by 30 June 2023 (the rules are different for in-house software allocated to a software development pool).
• You consider whether any apportionment may be required if some expenditure was used for digital and other purposes (for example, both print and digital advertising; or printers used for both scanning and printing etc.)
• The expenditure does not fall within specific exclusions.

If you would like Cooper Partners to review any claim under this Technology Investment Boost please contact our team.

Authors:
Maria Adisa, Consultant
Michelle Saunders, Managing Director

This newsletter is current as of 10 October 2023, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.

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