Small businesses can access a 20% bonus tax deduction for eligible expenditure incurred on business expenses and depreciating assets for the purposes of their digital operations or for digitising operations. The bonus deduction applies to up to $100,000 of eligible expenditure incurred in each period between 7:30pm on 29 March 2022 and 30 June 2023, with a maximum bonus deduction amount of $20,000 per income year or specified time period.
This bonus deduction is available to all entities that meet the definition of a small business entity, either those businesses with an aggregated annual turnover of less than $10m or those that meet the definition where the $10m threshold is replaced with $50m. Expenditure on digital operations or digitising operations may include the following:
- 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.
It should be noted that the eligible small businesses’ expenditure on digital operations or digitising its operations is not necessarily limited to the above. A broad range of expenditure could be eligible for the bonus deduction, provided:
- the expenditure itself is eligible for a deduction under another provision of taxation law (ie the expenditure must be necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income);
- the expenditure is incurred between 7:30pm (by legal time in the ACT) on 29 March 2022 and 30 June 2023;
- if the expenditure is on a depreciating asset, it must be first used or installed ready for use by 30 June 2023.
Any private use portion of expenditure is not eligible for the bonus deduction as it cannot be deducted under another provision of tax law. Small businesses are also ineligible to claim the bonus deduction for expenditure on depreciating assets if any balancing adjustment event occurs to the asset while the entity holds it during the relevant period, unless the balancing adjustment event is an involuntary disposal. However, repair and improvement costs for depreciating assets are eligible for the bonus deduction provided these costs are incurred during the relevant time period.
Other excluded expenditure in relation to the bonus deduction include:
- salary and wage costs;
- capital works costs which can be deducted under Div 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.
According to the government the above expenditure is excluded as they are not directly related to digital operations or digitising operations, and the bonus deduction is not intended to cover general operating costs related to employing staff, raising capital, construction of business premises, and the cost of goods and services the business sells. Training and education costs are excluded as they are specifically covered under the Skills and Training boost (which also provides a 20% bonus deduction).