120% Technology Investment Boost
Posted on 13th December 2022 by Christabelle Harris
What is the 120% technology Investment Boost?
As part of the 2022/23 budget, the Australian Government announced it will support small business through a technology investment boost.
Small business * who incurred business expenses and depreciating assets that support their digital adoption such as cyber security systems or subscription to cloud based services, will be able to deduct an additional 20% of the cost.
* With an aggregated annual turnover of less than $50 million.
Businesses may continue to deduct expenditure that is ineligible for the bonus deduction under the existing tax law. This is currently in the process of passing through law.
An annual $100,000 cap will apply to each qualifying income year. Businesses can continue to deduct expenditure over $100,000 under existing law.
When does the 120% technology bonus deduction apply?
Applies to expenditure incurred from 7.30pm AEDT 29 Match 2022 to 30 June 2023.
How to claim the 120% technology bonus deduction?
For the eligible expenditure made between 7.30pm AEDT 29 March 2022 to 30 June 2022,
- Claim the expenditure as usual, and
- Claim the additional 20% bonus deduction for this period in your 2022-23 tax return
For eligible expenditure incurred from 1 July 2022 to 30 June 2023
- Claim the entire 120% in your 2022/23 tax return
What is the maximum additional deduction you can claim?
The maximum bonus deduction a small business taxpayer can claim is $20,000 ($100,000 x 20%).
Expenditure eligible for the bonus deduction
To be eligible for the bonus deduction, expenditure must be incurred wholly or substantially for purposes of an entity’s digital operations or digitising the entity’s operations. That is, the expenditure must have direct link to the entity digital operations.
This may include, but not limited to;
- Digital enabling items – computer and telecommunication hardware, software, systems and services.
Excluded expenditure?
The following expenditure is excluded from the bonus deduction, even where the taxpayer meets the requirements
- Salary & Wage Cost
- Capital works
- Financing Costs
- Training and Education Costs
- Trading Stock Expenditure
Calculating 120% of expenditure
The bonus deduction is calculated at 20 per cent of the total amount of eligible expenditure, which caps at $20,000 per income year or specified time.
| Total Expenditure | $100,000.00 |
| Deduction | @ 20% |
| Additional maximum deduction claimed | $20,000.00 |
| Total Deduction Claimed | $120,000.00 |
This is a one-off bonus deduction in respect of the expenditure. Expenditure must be deductible under a taxation provision. If the business is registered for GST, the GST excluded amount is expenditure value.
Cap on bonus deduction
The total expenditure eligible for the bonus deduction is effectively $100,000 over the relevant time period such that entities can generally claim a maximum bonus deduction of $20,000 per relevant time period.
Different cap rules apply if an entity’s income year begins before 1 July 2022. This is known as “early balancer”. The early balancer can claim a maximum bonus deduction of $20,000 for the early balancer first time period (from 7:30pm ACT) on 29 March 2022 to the end of their 2022-23 income year.
For early balancers, the first $20,000 cap may be spread over two income years. (7.30pm ACT) on 29 March 2022 to the end of the 2021-22 income year and also the 2022-23 income year.
Early balancers can then claim up to a maximum bonus deduction of $20,000 during the period from the start of their 2023-24 income year to 30 June 2023.
This ensures that all entities can claim up to a maximum bonus deduction of $40,000 for the period from 7:30pm on 29 March 2022 to 30 June 2023.
Timing of claim
Normal Balancer
Bonus deduction for expenditure incurred in the 2022 income year, will be claimed in there 2023 income tax return. Bonus deduction for expenditure incurred in 2023 income will also be claimed in 2023 tax return.
What does this mean for our clients?
In short, clients purchasing digital enabling items, digital media and marketing or e-commerce business expenditures can be eligible for the bonus deduction in FY 2023 or FY 2024 depending on if they are a normal or early balancer.
Tax deductible expenditure items such as computers, computer software, hardware, subscription to cloud base services, cyber security systems fall under the technology booster scheme.
Therefore, it is important to make sure your accounting records are correct and supplied with the correct supporting documentation.