As we sail into uncertain economic times, the small business technology investment boost will help Australian business owners make the most of digital technologies when facing the challenges that lay ahead.
With high interest rates and talk of a recession on the horizon, Australian small business owners are bracing for turbulent times.
They'll likely need to do more with less, which is where adopting new technology can help.
To assist with this, the federal government has unveiled draft legislation which will give 3.7 million Australian small businesses access to more than $1.5 billion in tax concessions. The goal? To encourage digital technology adoption and boost training.
Increase productivity
Productivity growth is about harnessing our ingenuity to do more with the resources we already have — working smarter, not harder.
It’s also about investing in the latest technology and the best ideas, according to the second interim report of the Productivity Commission's 5 Year Productivity Inquiry: Australia's Data and Digital Dividend.
Technologies such as these are already revolutionising how businesses operate across the economy:
- Artificial intelligence (AI)
- The Internet of Things
- Robotic automation
- Big data analytics
The productivity gains from technology can be significant. For example:
- Robot-assisted warehouses that automate online order fulfilment and reduce accidents
- AI-enabled IoT sensors installed in smart cities that allow real-time optimisation of infrastructure, energy and service use and maintenance notification
Such things might sound out of reach for small businesses, but even modest technology upgrades can power productivity boosts across the board.
It's not just for the big end of town.
The report found that more than half of Australian businesses have a web presence, 68% have placed orders over the internet and 57% have adopted cloud technology.
Related: Small business hardship grants
Get a boost
Australia's Technology Investment Boost is a small business technology investment included in the 2022-23 federal budget. It is designed to help small businesses adopt new technology in order to punch above their weight.
The Technology Investment Boost, along with the Skills and Training Boost incentives, were introduced in the March 2021 budget. After the election, the new incoming Federal Government put them back on the table as draft legislation.
The Technology Investment Boost is currently before the Senate and is expected to become law.
Under the proposal, the small business tax break is available to Australian businesses with a combined annual turnover of less than $50 million. It can be claimed on expenses that:
- Help a small business go through the process of embracing technology
- Digitising operations
- Supporting a small business' digital activities
Under the deal, small businesses can claim an additional 20% tax deduction on qualified expenses up to $100,000.
In other words, small businesses will be able to receive a $120 tax deduction for every $100 they spend on "digital enabling items," up to a maximum of $20,000 per year.
Under existing taxation law, small businesses generally deduct a depreciating asset's cost in one year, or else over its effective life. This bonus deduction is equal to 20% of the asset's cost, regardless of the method of deduction.
The government has backdated the offer to cover expenses incurred between 7:30 p.m. (Australian Capital Territory time) on March 29, 2022, and June 30, 2023. If the claim is on a depreciating asset, it must be first used or installed ready for use by June 30, 2023.
Related: How to get your small business ready for the tax season
Develop skills
On top of this, small businesses with an annual turnover of less than $50 million will also have access to Skills and Training Boost incentives.
These incentives offer a bonus 20% deduction for eligible expenditure on external training of employees by providers registered in Australia, until 30 June 2024.
This training of employees can be provided in-person in Australia or online, regardless of where the employee is located.
There are two criteria:
- The small business must be charged directly or indirectly for the expenditures by a registered training provider
- The training program must be within the scope of the provider's registration
As it only applies to employees, this provision unfortunately does not apply to training provided to non-employee business owners such as sole traders or partners in the partnership, or training provided to contractors in a business.
Related: Business incubators in Australia
Know what expenses are eligible
To be eligible for the small business technology investment boost, the expense must be deductible under another taxation law. It must also have a "direct link to the entity's digital operations for its business."
Some examples of expenditures businesses might claim include:
- 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
It's important to note that certain expenditures are not eligible for the bonus Technology Investment Boost deduction. Ineligible expense include:
- Salary and wages
- Financing or training costs
- Expenses incurred in developing in-house software
How to claim the small business technology investment boost
If you still haven't filed your 2021-22 tax return, you can claim technology-related tax deductions as usual.
Don't worry if you've already done your 2021-22 taxes, you won't miss out on the small business technology investment boost.
When you fill out your 2022–23 tax return, you can claim the extra 20% bonus deduction on eligible items that you claimed on your 2021-22 tax return, as long as:
- They were incurred between 7:30 p.m. on March 29 and the end of the financial year
Alternatively, for eligible expenses incurred between July 1, 2022, and June 30, 2023, you can claim the entire amount on your 2022–23 tax return.
Digital technologies are the key to unlocking the productivity boost that will allow Australian small businesses to thrive in the years to come. The small business technology investment boost will ensure that your business isn't left behind in the digital revolution.
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