Category Archives: Tax

Understanding CGT Event D1

Did you know?
Your home can be taxable even if you don’t rent it out! Even if you bought your home Pre Capital-Gains Tax [CGT] (1985)!

Understanding CGT Event D1

When it comes to capital gains tax (CGT), there are various events that can trigger a tax liability. One such event is CGT event D1, which occurs when a taxpayer grants an easement, profit à prendre, or license over an asset.

But what exactly does this mean for you?

What is CGT Event D1?

CGT event D1 happens when you create a contractual right or other legal or equitable right in another entity. This event is distinct from CGT event A1, which deals with the disposal of an asset.

When CGT event D1 occurs, the cost base of the asset cannot be considered in calculating any capital gain or loss.

Additionally, any capital gain from the grant is not a discount capital gain and cannot be disregarded even if the asset was acquired before 20 September 1985 or if it relates to a main residence

Example: Granting an Easement

Let’s look at an example to understand this better:

Lisa bought a property on 1 January 1985. On 1 December 2017, she granted an easement over the property to her neighbour for a storm water pipe and received $40,000 for doing so. Lisa incurred $1,000 in legal expenses related to the grant of the easement.

As a result, Lisa will make a capital gain of $39,000 (capital proceeds of $40,000 less incidental costs of $1,000).

This capital gain is not a discount capital gain and cannot be disregarded, even though the property was acquired before 20 September 1985 or if it was her main residence

Why is This Important?

Understanding CGT event D1 is crucial for taxpayers who might be involved in granting rights over their assets. It ensures that you are aware of the tax implications and can plan accordingly. Whether it’s an easement, profit à prendre, or license, knowing how these grants are treated for CGT purposes can help you make informed financial decisions.

Source: ATO TD2018/15 : Income tax:  capital gains:  does CGT event D1 happen if a taxpayer grants an easement, profit à prendre or license over an asset?

Choosing the right business structure part 2- Partnership

In this series of articles, we are covering off the different types of business structures. In Part 1, we learnt about Sole Traders, uncovering the advantages and disadvantages of this business structure, as well as the tax implications.

In this article, we will cover off partnerships.

What is a partnership?

A partnership involves 2 or more partners that jointly own the business’s assets and liabilities, and make decisions relating to how the business is run. From a legal perspective, all the partners are treated equally.

A written partnership agreement is not required but can help prevent misunderstandings and disputes about what each partner brings to the partnership, sets out how income and losses are to be shared and set out how the business should be managed.

If there isn’t a written agreement, all partners will equally share in profits and are equally liable for any losses.

A partnership has no separate existence from the partners who make up the partnership.

Advantages of a Partnership

  • This business stricture is easier and less expensive to set up over a company
  • Partners can carry out business under a trading name
  • Partners can tap into the resources and expertise of several people
  • Partnerships are quite simple to administer
  • Partnerships allow greater flexibility with holiday and sick leave when compared to sole traders
  • It’s relatively simple to change a partnership to a company later stage
  • CGT small business concession and 50% CGT discount for sale of assets held by a partnership are available.

Disadvantages of a Partnership

  • Each partner is liable for debts incurred by other partners. This is referred to as ‘jointly and severally’ liable, or ‘unlimited liability’. Each partner can be sued and be required to pay the full amount of any debts of the partnership. If one or more partners is unable to pay, the other partners are required to pay the debt
  • All partners have a say in the management of the business, which may be a disadvantage if agreement can’t be reached. Personal differences may complicate partnerships
  • Partners cannot transfer their ownership to someone else, unless all partners agree
  • Partnerships can be challenging to dissolve and leave on good terms

Key tax obligations

  • A partnership has its own TFN
  • It must lodge an annual partnership return showing income and all deductions, and how these are distributed to the partners
  • Must apply for an ABN
  • Must register for GST if the annual turnover is over $75,000, provides taxi, limousine or ride sourcing services regardless of turnover or wants to claim fuel credits
  • The partnership doesn’t pay tax, instead each partner reports their share of income or loss in their own tax return

Check back soon for Part 3 of this series, where we cover off Trusts.

Choosing the right business structure Part 1- Sole Trader

When setting up a business, it’s important to consider the structure of the business right from the start, as it will allow you to manage your personal risk, protect your assets, limit your liability, give you a platform for future growth, and manage your tax obligations.

There are 4 common business structures in Australia, which include:

  • Sole Trader
  • Partnership
  • Trust
  • Company

This article will delve into the structure of sole trader, lifting the lid on the main benefits, disadvantages and tax implications of this popular model. If you’re wondering which is the right structure for your particular circumstances, talk to one of our registered tax agents.  

Sole Trader

A sole trader or ‘sole proprietor’ is the easiest and cheapest of all the business structures to set up. As a sole trader, there is no legal separation between the individual and the business. The individual is responsible for all debts incurred in the business, and all income is treated as personal income.

The sole trader may choose to set up business in their own name, or a business name. They must apply for an Australian business number (ABN) and use it in all business dealings.

If a creditor, supplier, bank or customer makes a claim against the business, and the business is not able to pay all these claims, they may choose to take legal action and recover the claims not just from the business assets, but also the personal assets of the sole trader.

Sole Trader Pros

  • Easy to set up and maintain
  • The sole trader has complete ownership, control and management over the direction of the business
  • The trader owns all business profits and assets
  • Less paperwork and minimal reporting and legal requirements governing how the business operates
  • Greater privacy due to not having to disclose profits to the public
  • Easy to wind up
  • The trader owns all profits and assets
  • Start-up costs to this type of business are usually quite low
  • This business structure is relatively easy to change as your business grows or changes down the track

Sole Trader Cons

  • This business structure means the owner has a personal liability for any debts incurred, and if business debts can’t be paid, they risk losing personal assets such as a vehicle or home.
  • Sole traders pay tax on profits at their individual tax rate, which may be higher than the company rate
  • Sole traders may have limited options when it comes to holidays, sick days or if they are unable to run the business due to illness or disability. If they can’t work, the business may stop operating
  • There is limited capacity for growth as a sole trader. Sole traders can’t take on business partners or co-founders, and capital growth is limited as investors or shareholders can’t be brought on
  • Sole traders bear the full brunt of all costs to the business, including to expand the business, so are usually slower to grow
  • Sole traders can’t minimise tax by income splitting or streaming with family members

Key tax implications

  • Sole traders use their individual tax file numbers (TFN) when lodging tax returns
  • All income is reported in their individual tax returns using the ‘business’ section to show income and expenses.
  • A sole trader must register for goods and services tax (GST) if their annual GST turnover is $75,000 or more, they provide taxi, limousine or ride-sourcing services regardless of turnover or they want to claim tax fuel credits
  • A sole trader may voluntarily use, or be required to make PAYG instalments to prepay their tax
  • Sole traders can claim a deduction for personal super contributions
  • Sole traders can hire workers, but they must meet all employer and super obligations for them

The sole trader business structure is popular, but as we’ve outlined above, has its limitations. Tune in next time where we’ll explore another popular business structure in Australia, the partnership.

Top Exit Strategies for SMEs

Running a small to medium-sized enterprise (SME) can be a rewarding venture.  A well-planned exit strategy can ensure a seamless transition when you decide to pass on ownership to someone else. However, when it’s time to move on to new opportunities, many owners find that their business is one of their least liquid assets. Even the most experienced entrepreneurs often struggle to understand the exit strategies available and which one best fits their unique situation

This article will delve into the advantages and disadvantages of various business exit strategies and the appropriate times to implement them.

What is an exit strategy and why is it important?

An exit strategy is a plan devised by a business owner, founder, investor, or venture capitalist for leaving their business. This could involve selling their share or the entire company for a financial gain or transferring it to a selected successor.

Some owners establish an exit strategy as a goal right from the outset. For instance, they might aim to sell their business in 5 years to a competitor, targeting 20% profit.

When might an exit strategy be useful?

An exit strategy can be used to:

  • Sell the entire company
  • Sell a portion of shares in the company
  • Relinquish control or reduce ownership in the business
  • Take your company public by listing it on the stock market
  • Close a business that is no longer profitable
  • Cash out an investment after achieving profit goals
  • Wind down operations if market conditions shift dramatically
  • Prepare for retirement

Types of exit strategies

Family Succession
An appealing option for those who have a suitable member of their family that the business can be passed down to.

Pros

  • Succession planning often happens over many years, meaning the family member has been transitioning to a leadership position, shadowing the current owner, and likely to possess intimate knowledge of the business.
  • Original owners can choose to retain close connection to the business, staying on in an advisory or consulting capacity. This means knowledge stays within the business.
  • Often a quicker and less expensive transition

Cons:

  • Often, the full value of the business may not be realised.
  • Sometimes, there may not be anyone in the family who is capable of taking on the role.
  • Blurring professional and family lines can add emotional or financial stress to a family. Perceived unequal involvement or perceived favouritism can lead to costly and lengthy disputes.

M&A
Mergers and acquisitions include selling your business to another business, who may be looking to increase their product and service offering, eliminate competition in market, increase their geographical footprint or acquire your infrastructure, people or IP. This type of exit strategy is particularly enticing to start ups and entrepreneurs.

Pros:

  • Business owners can maintain control over price negotiations and set their own terms.
  • If there’s a competitive advantage to be gained by the buyer, or multiple bids are submitted, price can be driven up even further.

Cons:

  • This form of exit strategy is often time-consuming, costly, and regularly fails.
  • Acquisition can lead to loss of brand identity within the larger acquiring business, and swift restructuring impacting staff and morale.
  • This form of exit comes with a myriad of legal, tax and commercial considerations that are complex for acquirers to navigate without professional help.

 Selling your stake to a partner or investor
Venture capitalists are always looking to add profitable businesses to their portfolios. Similarly, if you are not the sole owner of a business, you may choose to sell your stake to your partner.

Pros:

  • Minimal disruption to the business and revenue.
  • ​When selling to an investor, the process can be quite quick as they are usually well versed in a buyout.

Cons:

  • Finding a buyer or investor can be difficult or time consuming.
  • The sale may be less objective and therefore not as lucrative in terms of the offer.

IPO
An initial public offering (IPO) exit strategy entails selling shares of stock to the public, thereby transitioning the company from private to public ownership. This approach is ideal for companies that are well-established and capable of handling their responsibilities to shareholders.

Pros:

  • An IPO is one of the most lucrative business exit strategies in terms of valuation and sale price.
  • It can boost publicity, enhance reputation, and increase brand awareness.
  • It can also quickly fund a business experiencing rapid growth.

Cons:

  • An IPO is one of the most complex and costly exit strategies. It can take several months, if not years to complete.
  • It requires extensive initial and ongoing documentation and reporting.
  • Shareholders gain substantial influence over the company’s operations.

Liquidation
A common exit strategy for a failing business. The business is closed down and assets are sold off. Any cash earned is usually used to pay off debts or shareholders.

Pros:

  • This exit strategy can be simpler and faster to execute than other methods, such as acquisition.

Cons:

  • This form of exist is likely not a high-value exit.
  • You may burn bridges between you and your staff, partners and customers.

Any exit strategy is going to need an expert business partner to guide you through the process. Seeking guidance from an expert with help ensure a smooth process, from helping select the right exit strategy, reviewing historical financials, ensuring the accuracy of projected forecasts and helping with lodging any documents and closing on an offer. Hiring the right business advisor early on in the process can significantly impact on the outcome of the sale.  Get in touch with us if we can help you through this process.

Superannuation: What to know before June 2024

There are several big changes to the superannuation rules coming up from the 1st of July 2024 that employers will need to be familiar with, including the superannuation guarantee rate, changes to contribution caps and updates to carry forward and bring forward rules. This article outlines these changes and aims to make them clearer for employers.

Superannuation guarantee contributions
From June 30, there will be an increase to the employer superannuation guarantee rate, which will impact employee take home pay. In accordance with mandatory employer contributions to employee superannuation, the contribution rate will be rising to 11.5%, and is legislated to rise again to 12% on 1 July 2025.

Contribution cap changes
Along with employer contribution to employee superannuation, employees can grow their own super with their own contributions. The government sets limits on how much employees can contribute without tax implications. The changes include:

  • The before-tax contribution cap in 2024-25 is $30,000, which is up from $27,500 in 2023-24.
  • The after-tax contribution cap in 2024-25 is $120,000, which is up from $110,000 in 2023-24.

Bring forward rule changes
Any unused carry-forward contribution amounts will drop off, because cap amounts can only be carried forward for 5 years. As an example, any unused portion of the concessional contribution cap from the 2018/19 financial year will no longer be available as of 1 July 2024. However, the bring-forward arrangements will allow you to contribute up to $360,000 over a three-financial year period with no regard to the annual cap, provided the bring-forward rule is triggered after 1 July 2024.

Get in touch with us if you need some more information around superannuation and growing your wealth.

7 tips to help get your business in shape for EOFY

June 30 always seems like such a long way away, until it’s not! With EOFY fast approaching, we’ve put together a quick checklist to get you thinking about the key milestones to meet, and some ideas to incorporate into the 2024 financial year.

1. Get your house in order

Make sure all your financial records are up to date and accurately recorded in line with what the ATO needs. Records include things like income and expenses, invoices, receipts and bank statements. You may need to generate a profit and loss statement, record any assets purchased or expenditures you’ve made to improve your business.

This is a great opportunity to have your accountant review any automatic bank rules you’ve set up, and the GST codes assigned to ensure you are lodging accurate Business Activity Statements (BAS).

2. Check your Business Activity Statements

Make sure your BAS lodgements are accurate and up to date. If they’re not, speak to one of our accountants, or get in touch with the ATO to work out a payment plan to ensure you’re  quick to get back on track.

3. Finalise payroll and superannuation obligations

When reporting payroll, tax and superannuation, employers must use Single Touch Payroll (STP) to deliver relevant information to the ATO.

If you report payroll through STP, you need to make a finalisation declaration by the 14th of July 2024 to ensure your employees can access their finalised information to complete their tax return.

Check whether your super guarantee (SG) contributions are up to date, and if not, contact your accountant as soon as possible.

4. Take stock of inventory, assets and liabilities.

If your business has stock, you should complete your stocktake of inventory by 30 June. If your business has plant and equipment on hand that you maintain in an asset register, ensure you also review and make any adjustments by this date.

5. Work out your deductions

Speak to your accountant or head to the ATO website to see what deductions you can claim.. You might be able to claim deductions if your business has a website, has travel expenses, motor vehicle expenses, operates at home or uses computers, machinery or tools.

6. Reconciliation

Ensure you have everything ready for reconciliation. Reconciliation is a process where a business owner or accountant compares all the actual transactions of this business against supporting documentation to identify any discrepancies or errors. This forms an important step for EOFY preparations, as it allows the business to identify and rectify any potential problems before reporting to the ATO.

Things to account for on the Balance Sheet and Profit and Loss Statement include:

  • Ensure petty cash, bank accounts, credit cards, loans and repayments to fleet vehicles are reconciled.
  • Ensure GST and PAYG are reconciled in the June BAS
  • Ensure wages and super in the Profit and Loss report are reconciled to the PAYG Payment Summaries.
  • Ensure personal expenses have not been claimed as business expenses
  • Ensure any material differences to the previous year can be explained

7. Look ahead to next financial year

Now is the time to think about and make decisions regarding the new financial year, and where you want your business to go. Sit down with your accountant and assess whether you met your financial goals, and set some new goals for the year.

Business and tax planning is important in the ever-changing tax landscape. July 1 is a popular date for new regulatory changes to take effect, so it’s important you are prepared.  Things to think about include:

  • Keep an ear out for any updates to national wage increases or super contributions in the coming year
  • Update your budgets and reports for the year taking into account any increases coming down the pipeline, and any discrepancies between budgeted and actual spends in the current year
  • Based on this planning, see whether you need to adjust your pricing for the coming year to remain profitable
  • Speak to your accountant about tax planning early on in the new financial year, to make sure you’re in a good position come this time next year

Tax time can be a stressful period for some businesses, however with good planning and diligent processes, along with the help of a registered and qualified tax agent, it doesn’t need to be. If we can help make this process smoother for you, please get in touch.

Top Ten Challenges Facing SME’s Today

Navigating the intricate landscape of today’s business environment presents a myriad of challenges for Small and Medium-sized Enterprises (SMEs). In this article, we explore the top 10 hurdles that SME’s encounter, ranging from economic uncertainty to technological transformations, shedding light on the complex environment these enterprises must navigate in order to thrive.

  1. Economic Uncertainty: The Australian business landscape can be affected by economic uncertainties, impacting consumer confidence and spending.
  2. Cybersecurity: Protecting sensitive data and systems from cyber threats is increasingly vital, but it can be challenging for smaller businesses with limited resources.
  3. Talent Acquisition and Retention: Attracting and retaining skilled employees can be a hurdle, especially with larger corporations offering competitive benefits.
  4. Digital Transformation: Adapting to digital advancements and establishing a strong online presence can be challenging for businesses not yet fully engaged in digital transformation.
  5. Access to Funding: Small businesses may face challenges in accessing financing options, which can hinder growth and development.
  6. Remote Work Challenges: Balancing the demands of remote work, which became more prevalent due to global events, can be a challenge for businesses adjusting to flexible work arrangements.
  7. Compliance with Local Regulations: Navigating complex local regulations and compliance requirements specific to Australia poses a challenge for smaller businesses.
  8. Customer Engagement: Building and maintaining meaningful customer relationships is crucial, but it can be challenging for smaller businesses to compete with larger companies in this aspect.
  9. Financial Management: Balancing budgets, managing cash flow, and securing funding can be significant challenges for small to medium businesses.
  10. Global Market Entry: Expanding beyond the local market and navigating international trade regulations can be complex for small to medium enterprises.

These are just some of the challenges you may face as the owner of an SME. Being aware of these means you can prepare for success by speaking to a professional to help mitigate risk, plan for the future and understand opportunities. Get in touch with us to see how we can help.

Buying a business in NSW: 6 handy tips to consider.

Buying an existing business is a great way to leverage an established brand and operating environment in return for almost immediate profit. However, it’s easy to get swept up in all the excitement, making it crucial to do your due diligence to help minimise risks while maximising confidence in the purchase. Here are a few key issues to consider during the decision making process.

  1. Perform due diligence

Take your time and do your due diligence up front on the business in question. Be sure to examine the financials, management structure, reputation and whether the business has good product/market fit for commercial potential. Evaluate the competitors, market size, and any risks or likely future risks with any new legislation coming down the line.

Some questions to ask may include:

  • What does the financials of the business look like, including things like the revenue, profit and loss, assets and liabilities.
  • Why is the current business owner selling? You may need to dig a little deeper here to understand the full picture.
  • Is the business a franchise? What conditions will this impose?
  • Is there good market fit for the product or service in question? Is there a ready audience for the business in question, and will the audience size sustain the investment well into the future?
  • Does the purchase price include stock or equipment that will be needed to run the business, or will you need to fund these as well?
  • Are the premises rented? Can the lease be assigned to you?
  • Do you need any licences or permits to run this business?
  • Do you need to organise transferral of the business’s IP like business names and trademarks?
  • Who are the competitors of the business? Where are they located and will they pose a threat to the success of the business in future?
  • Is there goodwill attached to the business, and has this been valued?
  • Will staff within the business stay on, and how will their contracts be transferred? Are there any bonuses or long-standing leave entitlements to consider?
  • How was the purchase price derived? The factors you need to consider are industry dependant, but will generally always include goodwill, assets and yearly profit. It’s a good idea to get an independent valuation here as well.
  1. Evaluate the financial records

An accountant can help review the business and evaluate key financial indicators like sales, profits, debts, expenses and cash flow. They can also reveal any red flags and anomalies in the figures which may need further investigation.

At a bare minimum, it’s best practice to ask for the last 3 years of financial records, including tax returns, sales figures, BAS lodgements, a list of creditors and debtors and profit and loss statements. Annual reports will also provide a wealth of information.

  1. Consider the business structure

What structure will you use to buy the business? It’s important to explore all options with your accountant, as the structure you land on will have different tax and legal implications and can also impact on future decision-making capabilities. As an example, there will be different voting requirements for corporations and partnerships vs an individual ownership structure.

Engaging a professional accounting team will mean you maximise your return and set the business up correctly, right from the beginning.

  1. Think about all aspects of the transition period

Think about what happens after the transaction. Ensure you have a clear agreement in place for the seller to introduce the purchase to key parts of the business such as:

  • Customers –How is customer data held? Will they remain loyal when you take over? Check sales contracts to see what future sales are guaranteed.
  • Contacts – Who are the key suppliers and stakeholders to the business? How do they feel about the business vs their competitors?
  • Staff – Are employees generally happy? Will they remain with the business during the transition period? If not, are procedures documented to help the hiring process?
  1. Check legal rights and obligations

 Check what legal obligations you are entering into along with the purchase of the business, especially if it’s in a field you’re not overly familiar with.

  • Check ASIC to verify company details
  • Contact the NSW Fair Trading office for a record of any unscrupulous trading
  • Review government regulations and ensure the business has the right licences and permits it needs to operate
  • Check whether IP is protected through licences, patents and trademarks and whether these will be transferred in the sale
  • Check any worker entitlements including leave or compulsory superannuation
  • Check whether workers’ compensation premiums are up to date.
  • Check the lease and any agreements binding the business and ask for copies. Is there a right to renew on the lease and if not, could you find another suitable location?
  1. Understand your GST and stamp duty obligations

Is the business being sold as a going concern? If so, the sale may be GST-free with no extra stamp duty payable. It’s important to note that the ATO has a specific set of requirements that must be met before the sale is considered of going concern. If the business doesn’t meet these requirements, GST may be payable, which could pose a significant additional expense.

It’s important to seek professional tax advice here, to ensure all obligations have been budgeted for upfront.

While buying an existing business in NSW is an exciting time, it’s important to do your due diligence and ensure all factors have been considered. A good professional team made up of accountants and lawyers can help with identifying key questions, red flags, and ensuring the business is compliant prior to signing on the dotted line.

If this sounds like something you need support with, please don’t hesitate to get in touch with the team at Economos. We’ve partnered with countless clients to help them through the daunting task of purchasing a business.

What Education Expenses Can I Claim?

Get the latest information surrounding self-education expenses (item D4 of the tax return), especially in relation to the recent changes made to deductibility rules. We’ll also cover off some key information about what can and cannot be claimed and at what stage a legitimate claim can be made.

Items that can be claimed

Typical expenses that can be claimed as a tax deduction in personal tax returns include the following: tuition fees (direct full-course fees, fees payable under FEE-HELP, fees payable under VET student loans, and costs under OS-HELP loans), meals and accommodation during temporary overnight stays to participate in a course, textbooks, stationery, union fees, amenities fees, parking fees, a proportion of the decline in value of a computer, and travel costs in either direction between home and place of education or workplace and place of education. Note that with travel costs, only one leg of the trip is tax deductible.

Items that cannot be claimed

Fees paid under the HECS-HELP, HELP, SFSS, SSL, TSL or VSL programs cannot be claimed. Additional legs of trips made between home, work and place of education cannot be claimed.

Further, any formal courses provided by professional associations, or seminars, workshops or conferences cannot be claimed as part of self-education expenses. These are, however, tax deductible but claimable at Other Work-Related Expenses (item D5 of the tax return).

Timing of claimable deductions

In order to claim self-education expenses, you must be working in that same industry and show that the course undertaken was leading to, or would likely lead to an increase in income from those current work activities. You cannot claim self-education expenses if you undertake a course to obtain a job in the future in that industry, or if you’re looking to move into a different area of specialty in your current industry. Should this be satisfied, all items that can be claimed (as listed above) will be deductible expenses.

The removal of the $250 reduction

Commencing from the 2023 financial year, the ATO have removed the requirement to reduce the first $250 of self-education expenses. This simply means that for every deductible amount claimed, the tax benefit for claiming self-education expenses commences from the first dollar of claimable costs – in line with other work-related deductions.

Conclusion

The above is a summary of the claiming of self-education expenses as a tax deduction for individual taxpayers. It outlines key items that can be claimed, at what stage they can be claimed and the key change that took place in the 2023 financial year which removed a reduction in the claimable amount by $250.

Small Business Tax Incentives

This article details information surrounding newly legislated small business tax incentives which take effect from 29 March 2022 and run until 30 June 2023 for one incentive and 30 June 2024 for the other.

The Small Business Technology Investment Boost provides a bonus tax deduction for eligible businesses to assist with the digital operations, and to help digitise business operations, and runs from 29 March 2022 to 30 June 2023.

The Small Business Skills and Training Boost provides a bonus tax deduction for eligible businesses to participate in external training courses delivered by registered training providers and runs from 29 March 2022 to 30 June 2024.

Businesses eligible for these incentives include companies, sole traders, partnerships, Self-Managed Super Funds, and trading trusts.

Small Business Technology Investment Boost

For small businesses with less than $50m in turnover, this incentive allows for businesses to obtain a 20% bonus deduction (effectively claiming 120% of eligible expenses) for any eligible expenditure incurred to support their digital operations and to digitise their operations. This is for any expenses from 29 March 2022 through to 30 June 2022 and is capped at $100,000 of expenses per financial year applicable, meaning a bonus deduction of up to $20,000 per year.

These costs can include any expenses that are either immediately tax deductible, or depreciable assets, however if the item being claimed is a depreciable asset, it must be held and ready for use by 30 June 2023. Given the ability to claim a full-tax deduction for ordinarily depreciating assets (temporary full expensing) for small businesses which qualify for this incentive, unless a business elects not to claim a full deduction for certain assets, it would be expected that a depreciating asset would be fully depreciated on the depreciation schedule and relevant sections of the tax return, and then claim the bonus 20% deduction at the newly created section of the tax return.

Expenditure which falls under this incentive includes: computer and phone hardware and equipment, software, internet costs as well as systems and services which aid in the use of computer networks; digital media and marketing and web design; cyber security systems, backups and monitoring services; and anything relating to e-commerce goods and services.

For small businesses satisfying the eligibility criteria, it would be expected that most would be able to take advantage of this incentive, especially given the broad range of eligible expenses falling within this boost.

Small Business Skills and Training Boost

Like the Small Business Technology Investment Boost, the eligibility criteria for this incentive is quite similar. If business turnover is less than $50m, a bonus deduction of 20% is available for eligible expenditure between 29 March 2022, up until 30 June 2024. Again, this is capped at $100,000 of expenses per financial year, providing a maximum bonus deduction of $20,000 per eligible year.

Expenditure available under this incentive is for in-person or online training of employees of your business in Australia. However, the added criteria for expenditure to be eligible under this incentive is that the charge must be by a registered external training provider and cannot be a related business or yours or an associate of yours. An example of such expenditure would be first-aid training provided by a registered provider (such as St John Ambulance), or industry specific training, where the training provider is formally registered. This key item of eligibility means a little more work from your side to confirm whether a provider is in fact a registered training organisation.

How to claim

Although these two incentives were announced in March 2022, the legislation to allow for these boosts to be claimed only passed in late June 2023. As such, there has been much talk and speculation as to how businesses are to claim expenditure from 29 March 2022 through to 30 June 2022. There is no requirement to amend a 2022 tax return. Instead, the ATO is allowing a claim for the 2022 financial year and 2023 financial year boosts to be included in the 2023 income tax return.

The above simply means that eligible businesses would claim the ordinary deduction in the 2022 tax return, but then in the 2023 tax return, would be entitled to claim the bonus 20% deduction for eligible 2022 expenditure, plus the 120% deduction for eligible 2023 expenditure. For the Small Businesses Skills and Training Boost, which carries on for a further financial year, the 2024 financial year eligible expenditure will be claimed, along with the 20% boost in the 2024 tax return.

Conclusion

The above is a summary of the limited time-frame available to claim a bonus 20% tax deduction for eligible expenditure for small businesses when investing in skills and training for employees and technology and digitisation for their business operations. It is key to understand the eligibility criteria and the expenses available for such incentives when preparing financial accounts and tax returns for your business.

This information should provide valuable insight into a program, which even though it is available only for a finite period, will assist many small businesses in receiving additional tax deductions that either spend, or choose to invest in training and/or digitising in their business.