Small business with an aggregated turnover of less than $50 million will be entitled to a 20% bonus deduction for eligible expenditure on expenses and depreciating assets for the purposes of their business’s digital operations or digitising their operations.
An annual $100,000 cap on expenditure will apply to each income year, resulting in a maximum bonus deduction of $20,000 per year. The bonus deduction will be available for deductible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2023. Where the expenditure is incurred on a depreciating asset, the asset must be first used or installed ready for use for a taxable purpose by 30 June 2023.
To be eligible for the bonus deduction, expenditure must be incurred wholly or substantially for the purposes of an entity’s digital operations or digitising the entity’s operations. Where there is a private use portion of expenditure that portion is not an eligible expenditure as it is not able to be deducted under the taxation law.
Expenditure on digital operations or digitising operations may include business expenditure on:
- digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, 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, including web page design;
- e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services, and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth; or
- cyber security – cyber security systems, backup management and monitoring services.
Where the expenditure is eligible for both the Research and Development Tax Incentive and the bonus deduction, the taxpayer may claim both the bonus deduction and the tax offset. The bonus deduction will not affect the amount of the R&D tax offset.
Depreciating assets
An entity can claim the bonus deduction for expenditure on a depreciating asset only if the asset is first used, or installed ready for use, before 1 July 2023. The bonus deduction is not available on expenses incurred in the development of in-house software allocated to a software development pool, consistent with current pooling rules.
An entity cannot claim the bonus deduction for expenditure on a depreciating asset if any balancing adjustment event occurs to the asset while the entity holds it during the relevant time period, unless the balancing adjustment event is an involuntary disposal. This means, for example, that an entity cannot claim the bonus deduction if it sells the asset within the relevant time period.
Excluded Expenses
Expenses that are not eligible for the bonus deduction include:
- salary and wage costs;
- capital works costs which can be deducted under Division 43 of the ITAA 1997;
- financing costs;
- training and education costs; and
- expenditure that forms part of, or is included in, the cost of trading stock.
Training and education costs are excluded as these costs may be eligible for the Skills and Training Boost, which also provides a 20% bonus deduction.
Calculating the Bonus Deduction
The amount of the bonus deduction is calculated as 20% of the total of the GST exclusive amount of eligible expenditure, up to a maximum bonus deduction of $20,000 per income year or specified time period. Where the expenditure is for a depreciating asset the bonus deduction is equal to 20% of the cost of the asset for depreciation purposes that is used for a taxable purpose. The bonus deduction in respect of a depreciating asset is available regardless of the method of deduction that the entity applies to the asset (i.e. immediate write off of the asset or depreciated over time).
Example 5.1 - Treasury Laws Amendment (2022 Measures No. 4) Bill 2022
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. 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 cost 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.
Claiming the bonus deduction
Business will claim the bonus deduction for expenditure incurred in their 2021-22 income year in their 2022-23 return. This is to allow additional time for administrative and legislative arrangements to be put in place before the bonus deduction may be claimed. The bonus deduction for expenditure incurred in an entity’s 2022-23 income year will also be claimed in its 2022-23 return.
This timing applies only to the bonus deduction amount. All other deductions are made in accordance with relevant pre-existing tax law provisions.
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