Explainer: What are the new 20% tax deductions on tech and digital skills training, and how do they work?

Tech upgrades and digital skills training emerged as key points of the 2022-2023 federal budget, thanks to two new tax deductions proposed by the Morrison government.

The Small Business Technology Investment Boost, and the Small Business Skills and Training Boost, offer participating businesses an extra 20% tax deduction on relevant expenditure.

The twin policies are designed to encourage small business investment, while preparing Australian SMEs to compete in an increasingly digital economy.

Here’s a quick rundown of the twin policies.

What is on offer?

Treasurer Josh Frydenberg said the policies will offer “bonus” tax deductions to businesses which invest in new technology or external digital skills training for staff.

The policies offer a 20% deduction on eligible business expenses, on top of the deductions already available to SMEs come tax time.

“For every hundred dollars a small business spends on training their employees, they will get a $120 tax deduction,” Frydenberg told Parliament on Tuesday night.

Both the Small Business Technology Investment Boost, and the Small Business Skills and Training Boost, are open to businesses with an aggregated annual turnover of less than $50 million.

Under the Small Business Technology Investment Boost, relevant tech spending will be capped at $100,000 annually. Business will be free to claim expenses past that point as per usual.

No spending cap is listed under the Small Business Skills and Training Boost.

The federal government projects the tech package will reduce tax receipts by $1 billion over the policy’s lifespan. The training package is expected to reduce receipts by $550 million.

What can I claim?

The Australian Taxation Office (ATO) gives a good idea of what small businesses are free to claim under the Technology Investment Boost.

Business expenses and depreciating assets like “portable payment devices, cyber security systems or subscriptions to cloud based services” are all covered, the ATO said.

Budget documents suggest SMEs will be free to claim the cost of new laptops and next-generation websites, encouraging small businesses to bolster their technological capacities.

As for the skills package, budget documents state eligible “external training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.”

While the federal government is yet to provide a full rundown of eligible providers, such training organisations are likely to include RTOs registered with Australian Skills Quality Authority, and education providers listed by the Tertiary Education Quality and Standards Agency.

What can’t I claim?

The budget documents state the 20% tax deduction for digital skills training applies to external courses for employees.

This means business spending on in-house training is excluded.

It also suggests that sole traders, who upgrade their own digital skills via external training, won’t be eligible for the bonus 20% tax deduction.

When do those policies begin, and when do I claim?

Both policies came into effect as Frydenberg began his budget speech.

Indeed, federal budget documents show all relevant expenditure from 7.30pm AEDT on Tuesday, March 29, can be claimed under the new schemes.

The policies do have different end-dates, mind you. The tech package is set to last until June 30, 2023, while the training package will linger until June 30, 2024.

To claim the bonus on purchases made between Tuesday night and the end of the 2021-2022 financial year, small businesses must first submit a normal expenditure claim.

The bonus 20% will only be applied in the 2022-2023 financial year, the ATO stated.

Eligible expenditure made in the 2022-2023 financial year is different. Small businesses will be free to “deduct the entire 120% in your 2022–23 tax return,” the ATO said.

The 120% deduction will be available under the skills package in the 2023-2024 financial year, too.

What else do I need to know?

Crucially, legislation is required for both packages to come into effect, meaning the bonus deductions are no sure thing.

“These measures are not yet law,” the ATO said, putting an election-sized question mark over both policies.

That fact explains why eligible spending made before 30 June, 2022, will only accrue the 20% bonus deduction in the 2022-2023 financial year.

What are business leaders saying?

CPA Australia, which has long called for elevated government funding for digital upgrades, is celebrating the new measures.

“CPA Australia research shows that Australian small businesses have some of the lowest levels of digital capability in the Asia-Pacific region,” said Dr Jane Rennie, CPA Australia’s general manager of external affairs.

“The technology investment boost and the skills and training boost are welcome. These two programs go hand in hand and will help establish Australia as a top 10 digital economy.”

Terrence Teh, strategy director at Pitcher Partners, shared her optimism.

“These incentives should give business the motivation to explore, adopt and bring in digital capabilities especially around subscription technology that can help with ecommerce, customer intelligence and supply chain management,” he said.

But the packages could be improved by extending their reach, Rennie added.

“To have a bigger impact, the technology investment boost needs to go beyond 2023,” she said.

“The skills and training boost should be extended to sole traders and the range of training providers be expanded.”