News

The Fringe Benefits Tax (FBT) year ends on 31 March. We’ve outlined the hot spots for employers and employees.

A wealth based economy in an inflationary world After 15 years of exceptional global growth it is believed the global economy is heading into a more difficult decade of economic trade. It must be acknowledged that 15 years of economic prosperity has been accelerated through active government and central bank policy, stabilising markets and securing credit during the uncertainty of a post GFC world. Has the 'hands on' policy from global governments removed the dynamic effects of market based economics? We would argue that the historical over involvement of monetary and fiscal policy has prevented the natural function of the business cycle to occur, creating an artificial price action in global economics. Developed nations in particular have experienced substantial appreciation to asset valuations due to excess credit, a by -product of overreaching policy. The consequences of the money market imbalance have formed structurally unsupported demand levels and further embedded inflationary pressures. A world that has operated in a liquidity fuelled disequilibrium cannot properly allocate capital nor can it appropriately quantify risk. Seemingly a necessary pivot to 'fair value' under a normalisation of policy is proving a monumental task as confidence levels remain elevated and disconnected from the true value of the underlying assets. Central Banks have been forced to hike and hike rapidly as transitory inflation was debunked. Proving the global economy was not immune to the mania of pandemic spending and investment. The COVID hysteria may have passed, yet inflation appears to be stickier than expected, still market confidence remains with the 'soft landing' narrative. The global economic risks of Central Bank's narrow path to either not tighten enough or too much is certainly not being acknowledged by market pricing . The risk loving sentiment of the last 15 years has not yet been extinguished by tighter credit. What is the market missing? Global recession risk is likely being understated, particularly with a lagging China and negative domestic household savings. More importantly, the overarching theme for this decade that is being overlooked - stagflation. If inflation persists and unemployment rises we would likely enter a period of stagflation. A period defined by an erosion of purchasing power and significant structural job losses, ultimately curtailing economic growth. We are shifting from a government protected market to a floating market set by 'real' demand, and doubts remain if the market has the dynamic capacity to pivot with government policy and function without central bank liquidity. For a dynamic demand driven market to return we must see consumer and investor behaviours align in the government policy pivot towards tighter credit. The continual push back on recession forecasts accompanied with more than expected rate rises, unable to rein in inflation, supports that developed economies have become dependent upon excess government credit and structural change is required to absorb excess liquidity. In a world where market driven demand is skewed by government backed speculation, short run financial outcomes will be prioritised and market inefficiencies will remain. The disinflationary impacts of rate adjustments will be limited until investment behaviour changes. Investment strategy and market function need a dramatic shift towards long term economic goals, encouraging a more efficient alignment of economic issues and market function. Post pandemic economies must find transformative solutions to clear and systemic generational problems: climate change, the energy transition, deglobalisation and labour shortages. For the Australian market to allocate capital efficiently and operate effectively it requires more than the blunt instrument of rate rises. As changes in the cost of money will not shift investment to operate with a long term focus. Investment behaviour will remain on a per annum basis (short run) until governments adequately incentivise behavioural change, if investment activity is held constant stagflation will remain a risk. The structural change required to address environmental and generational economic issues is a 'catch- 22' to inflation, opportunities for innovation may increase productivity helping to ease inflation, yet the capital required for change is now substantially more expensive adding to inflationary pressures. Furthermore, the added cost of capital in an inflationary world is contributing to the choppiness of markets trying to compute the new normal of 'true value'. When market dynamics may still be skewed to the globalisation model failing to price in the compounding stagflation risks of an increasingly multipolar world. A shift in the optimal duration point of investment is a necessary economic antidote to stagflation and economic stability. We live in a precariously shifting economic climate, which intends to increase the cost of carbon whilst decreasing the cost of living. A contradictory world, enduring a cost of livingcrisis and yet luxury goods have proven to be some of the best defensive equities. The friction of changing macro trends will likely continue a preference towards defensive assets and future facing industries. Australia is uniquely positioned for the transformative decade ahead. We are a major producer of future facing commodities and have the potential to be a key player in the production of green energy. Our characteristics as a net exporter of hard and soft commodities for renewable solutions has the capacity to strengthen the Aussie dollar to the world's commodity dollar. Our currency would become aligned with the long term economic goals of our trading partners. As demand for Aussie dollars grows, our dollar will be a natural hedge against inflation, insulating us against stagflation risks in the long term. The Australian economy is well positioned for wealth based trade and development, however government policy must effectively incentivise the return of dynamic 'long run' market based activity, if we are to be sheltered from stagflation risks. Global macro thematics are changing and individual investors need to be aware of change economics 'the great transition. The inflationary risks change, may pose to your portfolio and the unique opportunities of the Australian market. An inflationary environment exacerbates two inescapable economic constraints for the individual: time and budget restrictions. As they spend more, they work more and save less- purchasing power is eroded. Time value constraints are evidenced in wage growth not satisfying consumer needs due to inflation pressures. An individual must consider a wealth strategy that best addresses time and budget constraints, and therefore improving overall purchasing power. Real assets are an essential buffer to the pressures of income shortfalls. The antidote to structural friction and inflation are assets that provide capital stability and a rate of capital return. These assets give an investor ownership (equity) and a passive form of income, both characteristics are the best defence against the time value constraint in an inflationary world. For the Australian retail investor there are three main areas to improve overall individual wealth: 1) Property: capital conservation and rental income resistant to inflation Property has a proven historical performance in Australia, a strong asset class for capital preservation. The housing crisis and supply/labour shortage is producing rental returns that far outweigh the rate of inflation. An emphasis should be placed on residential property, commercial property appears to be facing greater headwinds. 2) Passive Income: Interest and Dividends Passive income increases an individual's income without any further effort required. Interest and dividends derive income independent of a salary or hourly wage, improving an individual's overall productivity and time constraint. The supplementary income from passive investments can be an added shield against inflation. 3) Super: Future facing industries, commodities and infrastructure The great Australian super is a hugely important tool kit in establishing a self funded retirement, and an underappreciated asset in accumulating individual wealth. Australian superannuation has performed strongly over a historical basis, it also gives retail investors exposure to own positions in more selective institutional offerings. For people at all stages of their working life superannuation strategy must be considered, for two main reasons i) tax advantages can create a greater accumulation of wealth ii) The duration of investment for most people has a significant time horizon, often making it their longest accumulating asset. Therefore plan accordingly, and optimise compounding future returns that can defend your portfolio against inflation. Superannuation is an effective vehicle for ownership in real assets and future facing industries that can generate concessionally taxed income greater than the rate of inflation.at a later date. The global economy is facing a frictional decade of structural economic issues. Inflation is likely to remain present as the cost of a rapidly changing world. Australia is well placed to seize the opportunities of economic change. The individual must consider a capital security strategy in uncertain times, maximising wealth over the long term.

The Fringe Benefits Tax (FBT) year ends on 31 March. We’ve outlined the hot spots for employers and employees. FBT updates and problem areas FBT exemption for electric cars Work from home arrangements Car parking changes Mismatched information for entertainment claimed as a deduction and what is reported for FBT purposes Business assets personally used by owners and staff Employee contributions for FBT purposes and salary sacrifice Not lodging FBT returns Travelling or living away from home Housekeeping essentials Important FBT issues FBT exemption for electric cars Electric cars still represent a small proportion of the new car market in Australia. With the aim of increasing their take up, the Government has passed legislation that provides a FBT exemption effective from 1 July 2022 for certain no or low emissions vehicles. This means that providing your team members with the use of electric cars, hydrogen fuel cell electric cars or plug-in hybrid electric cars can now potentially qualify for a FBT exemption. This should normally be the case where: The value of the car is below the luxury car tax threshold for fuel efficient vehicles (which is $84,916 for 2022-23 financial year); and The car is both first held and used on or after 1 July 2022. When providing these exempt car benefits, it is important to be aware that your business would still need to work out the taxable value of the car benefit as if the FBT exemption didn’t apply. This is because the value of this exempt car benefit is still taken into account in the reportable fringe benefits amount of the employee. While income tax is not paid on this amount, it can impact the employee in a range of areas (such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments). This means the employee’s own home electricity costs incurred on charging the electric vehicle would often need to be worked out. One reason for this is that it can used as an employee contribution to reduce the value of the benefit. Because of the practical difficulties involved with working this out, the ATO has recently released a draft guideline providing a 4.20 cent per km rate that can potentially help. Just be aware that these guidelines do not apply to plug-in hybrid vehicles. Work from home arrangements While offices and work sites have largely re-opened, many employees continue to work from home either on a full-time basis or for at least part of the work week. Some businesses may have provided their employees with work-related items to assist their employees when working from home. Portable electric devices such as laptops and mobile phones are commonly used for work. Providing such devices to your employees shouldn’t trigger a FBT liability, as long they are primarily used by your employees for work. Where multiple similar items have been provided during the FBT year, the situation becomes more complex unless your business has an aggregated turnover of less than $50m (previously, this threshold was less than $10m). If an FBT exemption isn’t available, it is often worthwhile instead considering whether the FBT liability of such items could be reduced to the extent the employee could claim a once-only deduction in their personal return (i.e., had they purchased the item themselves). Car parking changes A controversial ruling from the ATO expands the scope of the FBT rules dealing with car parking benefits. This is because the ruling changes the ATO’s view on what constitutes a commercial parking station. It can now include parking stations that charge penalty rates for all-day parking to the public, such as those normally located in shopping centres. Where an employer provides: Car parking facilities for employees within 1km of a commercial parking station, and That commercial car park charges more than the car parking threshold ($9.72 for the year ended 31 March 2023) a taxable car parking fringe benefit will normally arise unless the employer is a small business and able to access the car parking exemption. This new expanded definition of a commercial parking station applies from 1 April 2022. If you provide car parking facilities to team members, it is important that you either: Have certainty that you are able to access the small business exemption which has a more generous turnover threshold of less than $50m from 1 April 2021 onwards; or Understand the implications of the ruling to the car park facilities you provide. Mismatched information for entertainment claimed as a deduction and what is reported for FBT purposes One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches. When it comes to entertainment, employers are keen to claim a deduction but this is not recognised as a fringe benefit provided to employees. Expenses related to entertainment such as a meal in a restaurant are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT. Let’s say you taken a client out to lunch and the amount per head is less than $300. If your business uses the ‘actual’ method for FBT purposes then there should not be any FBT implications. This is because benefits provided to client are not subject to FBT and minor benefits (i.e., value of less than $300) provided to employees on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either. If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the business would be able to claim 50% of the GST credits. Business assets personally used by owners and staff Private use of business assets is an area that crosses across a whole series of tax areas: FBT, GST, Division 7A and income tax. Take the ATO’s example of the property company that claimed deductions for a boat on the basis that it was used for marketing the company. Large deductions were claimed relating to running the boat. This attracted the ATO’s attention and a review was carried out. The ATO discovered the boat was used by the director and other employees for private trips, and to host parties for people who had paid to attend the company's property seminars. When looking at the overall business activities, the ATO determined the director had purchased the boat primarily for their own private use. As a result, they disallowed the deductions and the private use of the boat was a fringe benefit for the employees of the company. The company had to lodge an FBT return and pay the resulting FBT liability, as well as the income tax shortfall, interest and penalties. Employee contributions for FBT purposes and salary sacrifice An issue that frequently causes confusion is the difference between the employee salary sacrificing in order to receive a fringe benefit and making an employee contribution towards the value of that fringe benefit. To be an effective salary sacrifice arrangement (SSA), the agreement must be entered into before the employee becomes entitled to the income (e.g., before the period in which they start to perform the services that will result in the payment of salary etc.). Where an employee has salary sacrificed on a pre-tax basis towards the fringe benefit provided – laptop, car, etc., they have agreed to give up a portion of their gross salary on a pre-tax basis and receive the relevant fringe benefit instead. As a starting point, the taxable value of the fringe benefit is the full value of the expense paid by the employer. The salary sacrifice arrangement doesn’t reduce the FBT liability for the employer. The employer recognises a lower cost of salary and wages provided to the employee as their ‘cost saving’, which results in lower PAYG withholding and in most cases, superannuation guarantee obligations, but they still recognise the full value of the fringe benefit as part of their taxable fringe benefit which is subject to FBT. The employee recognises that they have a reduced amount of salary and wages, and a non-cash benefit in the form of the fringe benefit. Not lodging FBT returns The ATO is concerned that some employers are not lodging FBT returns or lodging them late to avoid paying tax. The ATO will normally pay close attention to any employer that: Is registered for FBT but lodges late. If your business is likely to face delays in lodging the FBT return, it’s usually a good idea to get in touch with the ATO early and ask for an extension request; or Is not registered for FBT. If your business employs staff (even closely held staff such as family members), and is not registered for FBT, it’s essential you have reviewed your position and are certain that you do not have an FBT liability. If the business provides cars, car spaces, reimburses private (not business) expenses, provides entertainment (food and drink), employee discounts etc., then you are likely to be providing a fringe benefit. Make sure you have reviewed the FBT client questionnaire we sent you! Travelling or living away from home Historically, travel allowances have caused confusion for many businesses. With the ATO having finalised its key guidance on travel costs more recently, they are likely to focus on benefits relating to transport, meals and accommodation. If your business provides travel allowances to employees, you will normally need to consider whether they are living away from home or just travelling overnight in the course of work. Where your employees are travelling overnight in the course of work, travel allowances paid in relation to such travel are normally assessable to your employees. However, they might be entitled personally to claim deductions for some of their travel expenses. For workers that are living away from home, these living away from home allowances are dealt with instead through the FBT system as a fringe benefit. While the taxable value of the benefit is usually the amount paid, there are some generous concessions that can allow for some or all of the allowance to be FBT exempt if certain conditions are met. Making this distinction is therefore important. The ATO explains in TR 2021/4 when allowances should be classified as a travel allowance or a living away from home allowance. Helpfully, the ATO has also finalised a ‘safe harbour’ style approach in PCG 2021/3 which can be used specifically for this purpose. Housekeeping It can be difficult to ensure the required records are maintained in relation to fringe benefits – especially as this may depend on employees producing records at a certain time. If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), remember to have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car, or missing records where employees forget.

The ATO has made changes to the way that working from home deductions can be claimed by eligible taxpayers for the 2023 income year. If you have genuinely worked from home at any time from 1 July 2022 to 30 June 2023, you may be eligible to use the ATO’s revised fixed-rate (67 cents per hour) method to claim for: energy expenses (i.e., electricity and gas) for lighting, heating/cooling, and to run electronic items used for work or business; internet expenses; mobile and home telephone expenses; and stationery and computer consumables (e.g., printing paper and printer cartridges). Under the revised fixed-rate method, a claim for the above running expenses is calculated at a fixed rate of 67 cents for each hour that you worked from home during the 2023 income year. This is an alternative method to claiming for the above running expenses using the actual method, which would require a separate claim for the work/business portion of each expense. Claims for deductible running expenses not covered by the revised fixed-rate method (e.g., depreciation of a computer used for work or business) can only be made using the actual method. What records do you need to keep when using the ATO’s revised fixed-rate method? You will need to keep some receipts, bills or invoices of the running expenses you have incurred in order to verify your claim. You will also need to keep a record (e.g., a timesheet, diary or similar record) of the number of hours you worked from home during the year, basically as follows: From 1 July 2022 to 28 February 2023 – The ATO will generally accept a record of the number of hours worked from home over a representative period (e.g., a diary for a four-week period). This can then be used to estimate the total number of hours worked for this entire period. From 1 March 2023 – You need to keep a record of the total number of actual hours worked from home. This effectively means that you will need to make a record (e.g., a diary entry) of the number of hours worked from home on each occasion that you worked from home. We have also attached a sample working from home diary that could be used for this purpose. If you have worked from home during the 2023 income year, please contact our office to discuss your situation further as you are likely to be affected by the above changes.

The Government has announced a proposal to: remove fringe benefits tax (FBT) on eligible electric cars from 1 July 2022, and include the value of these exempt car fringe benefits in the calculation of an employee's reportable fringe benefits amount. This will apply from the FBT year beginning 1 April 2022.The Government intends to review this exemption after 3 years, to consider electric car take-up.  The Bill applies to fringe benefits provided on or after 1 July 2022 for cars that are eligible zero or low emissions vehicles that are first held and used on or after 1 July 2022.The FBT exemption relates to car fringe benefits and therefore will only apply to vehicles that are ‘cars’ for FBT purposes; other types of electric vehicles are excluded. Additionally, to be eligible for the exemption the value of the car at the first retail sale must be below the luxury car tax threshold for fuel efficient cars, i.e., $84,916 for the 2023 tax year.

On 29 March 2022, as part of the 2022–23 Budget, the then Government announced it will support small business through the following new measures. These measures are not yet law. (i) Small Business Technology Investment Boost (ii) Small Business Skills and Training Boost Small Business Technology Investment Boost Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud based services. An annual $100,000 cap on expenditure will apply to each qualifying income year. Businesses can continue to deduct expenditure over $100,000 under existing law. This measure will apply to expenditure incurred in the period commencing from 7:30 pm AEDT 29 March 2022 until 30 June 2023. However, expenditure incurred prior to 30 June , 2022 is claimed in the 2023 tax year. Small Buisness Skills and Training Boost Small businesses with an aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of expenditure incurred on eligible training courses provided to employees. This measure will apply to expenditure incurred in the period commencing from 7:30 pm AEDT 29 March 2022 until 30 June 2024. You may be eligible for temporary full expensing if you are one of the following: a business with an aggregated turnover of less than $5 billion a corporate tax entity that meets the alternative income test . For the 2021, 2022 and 2023 tax years, an eligible entity can claim in its tax return a deduction for the business portion of the cost of: eligible new assets first held, first used or installed ready for use for a taxable purpose between 7.30pm AEDT on 6 October 2020 and 30 June 2023 eligible second-hand assets where both the asset was first held, first used or installed ready for use for a taxable purpose between 7.30pm AEDT on 6 October 2020 and 30 June 2023 the eligible entity’s aggregated turnover is less than $50 million improvements incurred between 7.30pm AEDT on 6 October 2020 and 30 June 2023 to eligible assets existing assets that would be eligible assets except that they are held before 7.30pm AEDT on 6 October 2020 eligible assets of small business entities using the simplified depreciation rules and the balance of their small business pool. You can make a choice to opt out of temporary full expensing for an income year on an asset-by-asset basis if you are not using the simplified depreciation rules.

Clients with self managed superannuation funds (SMSF) often ask what assets the SMSF can acquire. ‘Why’? The golden rule for acquiring assets inside your SMSF is why? To be compliant, your fund must be maintained for the sole purpose of providing retirement benefits to members, or to their dependants if a member dies before retirement. The sole purpose test (section 62 of the Superannuation Industry (Supervision) Act 1993), is your starting point. If the collectible you are looking to acquire does not fulfil this purpose, then you have an immediate problem. Let’s assume you are looking to acquire vintage cars. The question to ask is, is the acquisition a viable investment or simply a desire of the members to own vintage cars. Does the investment ‘stack up’ relative to other forms of investment to build/protect the retirement savings of members? The sole purpose test extends to how the collectible is managed once acquired. Given the asset is for the sole purpose of the member’s retirement benefits, the members (or their associates) cannot use or enjoy the asset in any way. This means: Storage of the collectible cannot be at the trustee’s residence or displayed at their office. The ATO says, “You can store (but not display) collectables and personal use assets in premises owned by a related party provided it is not their private residence. They can’t be displayed because this means they are being used by the related party. For example, if your SMSF invests in artwork it can’t be hung in the business premises of a related party where it is visible to clients and employees.” Leasing or use of the collectible can only be undertaken with an unrelated party. The collectible must have its own insurance policy owned by the SMSF (multiple items can be listed on the same policy i.e., wines of different brands). The insurance policy must be in place within 7 days of acquisition. Like all other assets, if a collectible is sold to a related party, then it must be sold at market value. Collectibles also require a qualified independent valuation if sold to a related party. This means you cannot stay in a holiday home owned by your SMSF, you cannot drive a vehicle owned by the SMSF, and you cannot enjoy artwork held by the SMSF. And, those bottles of Penfolds Grange owned by the SMSF that broke (wink, wink) are likely to trigger an audit as they should have been properly stored in a way that prevents breakage. Your investment strategy An SMSF investment strategy should articulate the plan trustees have for a fund and the investments they choose to hold. It should drill down into the reasons why certain assets will be acquired (or sold) and how these choices align to the retirement goals of the members. If your SMSF is considering purchasing collectibles, it is essential that your investment strategy is aligned to these types of investments and articulates why the asset fits within the strategy. This is particularly important if the collectible/s will dominate the types of assets held by the fund, its liquidity, and diversity. A common question is, can my SMSF purchase, let’s say artwork, from a member or a related party of the fund? The answer is no. SMSFs are not allowed to purchase assets, other than listed shares and business real property, from related parties. But, the SMSF could transfer the artwork to a member as an in-specie lump sum payment if the member meets a condition of release, or sell the asset to the member but only if the transaction is at arms length, and an independent valuation confirms the market value of the asset.

The tax system currently allows Australia to tax payments made by an Australian customer in relation to technical services provided by an Indian firm, even when the services are provided remotely. This is due to the wording contained in the double tax agreement between Australia and India.  Under an agreement reached in connection with the Australia‑India Economic Cooperation and Trade Agreement (AI-ECTA), these payments will no longer be taxed in Australia. The typical categories of services intended to be covered by the amendments include: engineering services; architectural services; and computer software development. The amendment to the tax rules is in consultation phase and not yet law. If enacted, it will apply once the amendments receive Royal Assent, assuming the AI-ECTA has been entered into force.

The Government has reinvigorated the 120% skills training and technology costs deduction for small and medium business. An election ago, the 2022-23 Budget proposed a 120% tax deduction for expenditure by small and medium businesses on technology, or skills and training for their staff. This proposal has now been adopted by the current Government and details released in recent exposure draft by Treasury. An election ago, the 2022-23 Budget proposed a 120% tax deduction for expenditure by small and medium businesses on technology, or skills and training for their staff. This proposal has now been adopted by the current Government and details released in recent exposure draft by Treasury. Timing Two investment ‘boosts’ will be available to small and medium businesses with an aggregated annual turnover of less than $50 million: Skills & Training Boost Technology Investment Boost The Skills and Training Boost is intended to apply to expenditure from 7.30pm ACT time on Budget night, 29 March 2022 until 30 June 2024. The business, however, will not be able to start claiming the bonus deduction until the 2023 tax return. That is, for expenditure incurred between 29 March 2022 and 30 June 2022, the additional 20% ‘boost’ deduction will not be claimable until the 2022-23 tax return (assuming the announced start dates are maintained if and when the legislation passes Parliament). The Technology Investment Boost is intended to apply to expenditure from 7.30pm ACT time on Budget night, 29 March 2022 until 30 June 2023. As with the Skills and Training Boost, the additional 20% deduction for eligible expenditure incurred by 30 June 2022 will be claimed in the 2023 tax return. The boost for eligible expenditure incurred on or after 1 July 2022 will be included in the income year in which the expenditure is incurred. When it comes to expenditure on depreciating assets, the bonus deduction is equal to 20% of the cost of the asset that is used for a taxable purpose. This means that, regardless of the method of deduction that the entity takes (i.e., whether immediate or over time), the bonus deduction in respect of a depreciating asset is calculated based on the asset’s cost. Technology Investment Boost The Technology Investment Boost is a 120% tax deduction for expenditure incurred on business expenses and depreciating assets that support digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services. The boost is capped at $100,000 per income year with a maximum deduction of $20,000. To be eligible for the bonus deduction: The expenditure must be eligible for deduction (salary and wage costs are excluded for the purpose of these rules) The expenditure must have been incurred between 7.30pm (AEST), 29 March 2022 and 30 June 2023 If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use by 30 June 2023. To be eligible, the expenditure must be wholly or substantially for the entity’s digital operations or digitising its operations. For example: 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; and e-commerce – supporting digitally ordered or platform enabled online transactions. Repair and maintenance costs can be claimed as long as the expenses meet the eligibility criteria. Where the expenditure has mixed use (i.e., partly private), the bonus deduction applies to the proportion of the expenditure that is for an assessable income producing purpose. The bonus deduction is not intended to cover general operating costs relating to employing staff, raising capital, the construction of the business premises, and the cost of goods and services the business sells. The boost will not apply to: Assets that are sold while the boost is available Capital works costs (for example, improvements to a building used as business premises) Financing costs such as interest expenses Salary or wage costs Training or education costs Trading stock or the cost of trading stock For example: A Co Pty Ltd (A Co) is a small business entity. On 15 July 2022, A Co purchased multiple laptops to allow its employees to work from home. The total cost was $100,000 (GST-exclusive). The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use. As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of a capital expense. A Co can claim the full purchase price of the laptops ($100,000) as a deduction under temporary full expensing in its 2022-23 income tax return. It can also claim the maximum $20,000 bonus deduction in its 2022-23 income tax return. The $20,000 bonus deduction is not paid to the business in cash but is used to offset against A Co’s assessable income. If the company is in a loss position, then the bonus deduction would increase the tax loss. The cash value to the business of the bonus deduction will depend on whether it generates a taxable profit or loss during the relevant year and the rate of tax that applies. Skills and Training Boost The Skills and Training boost is a 120% tax deduction for expenditure incurred on external training courses provided to employees. External training courses will need to be provided to employees in Australia or online, and delivered by training organisations registered in Australia. To be eligible for the bonus deduction: The expenditure must be for training employees, either in-person in Australia, or online The expenditure must be charged, directly or indirectly, by a registered training provider and be for training within the scope (if any) of the provider’s registration The registered training provider must not be the small business or an associate of the small business The expenditure must be deductible Enrolment for the training must be on or after 7.30pm, 29 March 2022. The training must be necessarily incurred in carrying on a business for the purpose of gaining or producing income. That is, there needs to be a nexus between the training provided and how the business produces its income. Only the amount charged by the training organisation is deductible. In some circumstances, this might include incidental costs such as manuals and books, but only if charged by the training organisation. Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees. The training boost is not available to: Sole traders, partners in a partnership, or independent contractors (who are not employees) Associates of the business such as a relative, spouse or partner of an entity or person, a trustee of a trust that benefits an entity or person and a company that is sufficiently influenced by an entity or person. For example: Cockablue Pets Pty Ltd is a small business entity that operates a veterinary centre. The business recently took on a new employee to assist with jobs across the centre. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 (GST exclusive) for the employee to undertake external training in veterinary nursing. The training is delivered by a registered training provider, whose scope of registration includes veterinary nursing. The bonus deduction is calculated as 20% of 100% of the amount of expenditure that can be deducted under another provision of the taxation law. In this case, the full $3,500 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700. In this example, the bonus deduction available is $700. That does not mean the business receives $700 back from the ATO in cash, it means that the business is able to reduce its taxable income by $700. If the company has a positive amount of taxable income for the year and is subject to a 25% tax rate, then the net impact is a reduction in the company’s tax liability of $175. This also means that the company will generate fewer franking credits, which could mean more top-up tax needs to be paid when the company pays out its profits as dividends to the shareholders.