Small businesses in Australia are being urged by Chartered Accountants Australia and New Zealand (CA ANZ) to seize a valuable tax incentive that allows them to deduct 120per cent of the costs associated with training employees and digitizing their operations.
This incentive comes as recent legislation enabling the deduction was successfully passed by Federal Parliament.
Susan Franks, CA ANZ’s Senior Tax Advocate, emphasized the significance of this incentive, especially in light of the ongoing worker shortages faced by small businesses.
Franks pointed out that the 120 per cent deduction for employee training applies to expenses incurred by small businesses starting from March 29, 2022.
“With small businesses facing worker shortages, the incentive to train new and existing staff is a great initiative,” said Ms Franks.
However, businesses must meet specific criteria to qualify for the deduction and carefully consider the impact on their operations. Here are some key guidelines to keep in mind:
Employee Training
To take advantage of the tax incentive for employee training, small businesses need to adhere to the following:
- Exclusions: The incentive is not applicable to sole traders, partners, and independent contractors.
- Training Relevance: Businesses should choose training programs that are directly related to their employees’ roles within the organization. It is important to ensure that the training aligns with their specific job responsibilities. Failure to do so may result in potential Fringe Benefits Tax (FBT) liabilities.
- Recognized Providers: The training must be provided by recognized providers who are registered and authorized to deliver the specific courses or programs. Businesses can verify the credentials of training providers on training.gov.au.
- Location: In-person training must take place within Australia. However, digital training can be conducted from anywhere. Businesses with overseas employees can only provide training digitally.
- Financial Considerations: It’s important for businesses to plan their cash flow effectively, as they will need to pay for the training upfront. The deduction for the cost of training will be claimed in the subsequent tax return, which may take some time.
Digitalization
Small businesses can now claim an additional deduction for the costs associated with digitalizing their operations. Here are some important points to consider:
- Eligible Expenses: The deduction covers various expenses related to digitalization, including computers, software systems, digital media, marketing content, e-commerce expenditure, and equipment repairs and maintenance.
- Excluded Costs: Certain expenses are excluded from the deduction, such as salary and wages, financing costs, training costs (except for the 120% training bonus), and trading stock.
- Business Use: Deductions can only be claimed for expenses that are used exclusively for business purposes and not for personal use.
- Digitalization Plan: Small businesses must demonstrate that the expenditure is wholly or substantially for the purpose of digital operations or digitalizing their existing operations. Having a well-defined digitalization plan can help provide clarity and ensure compliance with the requirements.
- Cash Flow Management: Businesses need to carefully manage their cash flow, as the costs associated with digitalization need to be paid upfront. The deduction for these expenses will be claimed in the subsequent tax return, which may have a significant time lag.
CA ANZ advises small businesses to plan ahead and take prompt action, as the tax incentive has a limited timeframe. Businesses have until June 30, 2023, to undertake digitalization expenses and until June 30, 2024, to invest in employee training expenses to benefit from the deduction.
“It’s a win for small businesses who’ve already spent money digitalising their business this financial year but for those who haven’t, the window to act is very small. This 120% deduction only passed Federal Parliament yesterday, but small businesses looking to spend money on digitisation, only have until June 30, 2023 to take advantage of the incentive.
“Small businesses should also be aware; they can only claim the 120% deduction to digitise their business for up to a maximum of $100,000 of expenditure.”
Small businesses seeking further guidance on the incentive are encouraged to consult with their Chartered Accountant, who can provide expert advice and assistance in navigating the requirements and maximizing the benefits of this tax incentive.
About Chartered Accountants Australia and New Zealand
Chartered Accountants Australia and New Zealand represent more than 135,000 financial professionals.
More here: www.charteredaccountantsanz.com
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