Check if you can claim a 20% bonus deduction on technology expenditure to help digitise your small business.

About the boost

Small businesses with an aggregated annual turnover of less than $50 million will be allowed an additional 20% tax deduction to support their digital operations and digitise their operations.

The boost applies to eligible expenditure incurred between 7:30 pm AEDT on 29 March 2022 and 30 June 2023. The boost is for business expenses and depreciating assets and is capped at $100,000 of expenditure per income year. You can receive a maximum bonus deduction of $20,000 per income year.

Eligibility

To access the small business technology investment boost, your business needs to be a small business entity. Your aggregated annual turnover must be less than $50 million for the income year in which you incur the expenditure.

The expenditure must:

• already be deductible for your business under taxation law
• be incurred between 7:30 pm AEDT 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 for a taxable purpose by 30 June 2023.

Find out if you are eligible for the Small business skills and training boost.

What you can claim

Eligible expenditure may include, but is not limited to, 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
• cyber security – cyber security systems, backup management and monitoring services.

Where the expense is partly for private purposes, the bonus deduction can only be applied to the business-related portion.

If your business is registered for GST and the expenditure is not GST-free, the bonus deduction is calculated on the GST exclusive amount plus any GST you cannot claim as a GST credit incurred in carrying on your business.

There may be fringe benefits tax (FBT) consequences associated with the expenditure you incur. For more details, refer to Fringe benefits tax – a guide for employers.

Cap on the bonus deduction

An annual cap applies so that expenditure up to $100,000 is eligible for the bonus deduction, with the bonus deduction capped at $20,000 per year. The maximum bonus deduction a business can claim is $40,000 for the entire period.

However, different cap rules apply if your 2022–23 income year begins before 1 July 2022. As an ‘early balancer’ you can:

• claim a maximum bonus deduction of $20,000 for the period between 7:30 pm AEDT 29 March 2022 and the end of your 2022–23 income year
• then claim a maximum bonus deduction of $20,000 from the start of your 2023–24 income year to 30 June 2023.

Depreciating asset

The bonus deduction can also apply to expenditure on a depreciating asset. The asset must be first used or installed ready for use for a taxable purpose between 7:30 pm AEDT 29 March 2022 and 30 June 2023. This rule does not apply to expenses incurred in the development of in-house software allocated to a software development pool, consistent with current pooling rules.

Repair and improvement costs for depreciating assets are also eligible for the bonus deduction. This is provided they are incurred during the relevant time period.

A balancing adjustment event occurs when you dispose of a depreciating asset. If a balancing adjustment event occurs in the relevant period, you cannot claim the bonus deduction for that asset. That is unless the balancing adjustment event is an involuntary disposal (for example, the asset is lost or destroyed).

Small business entities generally can deduct the cost of a depreciating asset under temporary full expensing in one income year. Alternatively, they can deduct the decline in value of the asset over its effective life if they choose not to use the simplified depreciation rules and opt out of temporary full expensing.

The bonus deduction is calculated as 20% of the expenditure on the eligible depreciating asset. This is if the expenditure occurs in the relevant period and it is first used or installed ready for use for a taxable purpose before 1 July 2023. That is regardless of the depreciation method the business uses. If a business purchases a depreciating asset in the relevant period, the expenditure will be the cost of the asset.

Example: A Co temporary full expensing and bonus deduction for new laptops and server upgrade

A Co Pty Ltd (A Co) is a small business entity with an aggregated annual turnover of $28 million. On 15 July 2022, A Co purchase multiple laptops to allow employees to work from home. The total cost is $55,000 (GST inclusive). A Co is registered for GST and entitled to the GST input credit of $5,000.

The laptops are delivered on 19 July 2022 and immediately issued to staff entirely for business use. A Co retains ownship of the laptops. 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 excluding GST amount ($50,000) as a deduction under temporary full expensing in its 2022–23 tax return if they meet relevant criteria. The bonus deduction is calculated as 20% of the cost of the assets, which is $10,000.

A Co previously purchased a new server on 20 August 2020 to support the business network and working from home. They have already claimed an immediate deduction for the depreciation of the asset. On 25 March 2023, they make an upgrade to the server which costs $9,900 (GST inclusive). A Co is able to claim a GST credit of $900. The cost of the upgrade can be claimed under temporary full expensing.

As the upgrade is incurred between 29 March 2022 and 30 June 2023, it is eligible for the bonus deduction. Therefore, A Co is also able to claim $1,800 bonus deduction (being 20% of $9,000).

Therefore, in its 2022–23 tax return, A Co claims:

• $59,000 temporary full expensing ($50,000 + $9,000)
• $11,800 bonus deduction (20% of $50,000 and 20% of $9,000).

End of example

Example: B Co depreciation and bonus deduction for new laptops

B Co Pty Ltd (B Co) is a small business entity with an aggregated annual turnover of $45 million. On 15 July 2022, B Co purchase multiple laptops to allow staff to work from home. The total cost is $132,000 (GST inclusive). B Co is registered for GST and entitled to the GST input credit.

The laptops are delivered on 19 July 2022 and immediately issued to staff entirely for business use. B Co retains ownership of the laptops. As the holder of the assets, B Co is entitled to claim deductions for the depreciation of the laptops. B Co has made the choice to opt out of temporary full expensing and instead will claim depreciation deductions for the laptops over their effective life.

In its 2022–23 tax return, B Co can claim a depreciation deduction for the decline in value of the laptops between 19 July 2022 and 30 June 2023. As the cost of assets ($120,000 excluding GST) exceeds the cap of expenditure eligible for the small business technology investment boost ($100,000 for 2022–23 income year), it can only claim the maximum $20,000 bonus deduction in its 2022–23 tax return, being 20% of $100,000.

Depreciation deductions that B Co may be able to claim in 2022–23 and later income years are not altered by the bonus deduction.End of example

What you can’t claim

You can’t claim the following expenses towards the boost:

• salary and wages
• capital works costs
• financing costs
• training or education costs (these may be eligible for the Small business skills and training boost)
• expenses that form part of your trading stock costs.

Research and development tax incentive

If your business is entitled to an R&D notional deduction under the research and development (R&D) tax incentive program, you are only entitled to the notional R&D deduction and not a deduction under other taxation law. Your bonus deduction is still claimed based on what that other deduction would have been.

You can claim both the bonus deduction and the R&D notional deduction. The bonus deduction will not affect the amount of the R&D notional deduction. The R&D notional deduction amount is the actual expenditure amount, not the expenditure amount and the bonus deduction amount.

Not-for-profit organisations

A taxable not-for profit organisation can claim the boost in their company tax return if they meet both of the following requirements:

• eligibility (small business with an aggregated annual turnover of less than $50 million), and
• eligible expenditure.

A taxable not-for-profit is not exempt from income tax. You are required to lodge a tax return each year or notify a return not necessary.

When you can claim

You generally claim a deduction in the year the expenses are incurred. Under the delayed claim rule, you may have to claim a deduction for the eligible expense in your tax return for the income year in which you incurred it and claim the 20% bonus amount in a later year’s tax return. This generally depends on:

• when your income year runs, so whether your business is an early, normal or late balancer
• at what time during your income year you incur the expense.

Normal, early or late balancers

An entity’s income year is usually the 12-month period ending on 30 June. We refer to these entities as ‘normal balancers’. For example, their income year is 1 July 2022 to 30 June 2023.

When an entity is allowed to adopt a substituted accounting period (SAP):

• where the last day of its income year falls between 1 July and 30 November, the SAP is in lieu of the income year ending on the preceding 30 June – this is a ‘late balancer’
• where the last day of its income year falls between 1 December and 31 May the period adopted is in lieu of the income year ending on the succeeding 30 June – this is an ‘early balancer’.

The following special rules apply only to claiming the bonus deduction. The rules do not affect the existing general deduction under taxation law.

Normal balancers

For most businesses who are normal balancers, for eligible expenditure incurred between 7:30 pm AEDT 29 March 2022 and 30 June 2022, you:

• claim the 100% deduction for this period in your 2021–22 tax return
• claim the 20% bonus incurred in this period in your 2022–23 tax return.

For eligible expenditure incurred between 1 July 2022 and 30 June 2023 you claim both the 100% deduction for the expenditure and the 20% bonus deduction in your 2022–23 tax return.

Example: claiming the boost deduction as a normal balancer

C Co Pty Ltd is a small business entity with an annual aggregated turnover of $2 million in the 2021–22 income year. It’s 2021–22 income year ran from 1 July 2021 to 30 June 2022 (normal balancer). On 23 April 2022, C Co paid $2,200 (including GST) for commercial off-the-shelf cybersecurity software with an effective life of one year.

C Co is registered for GST hence can claim the input tax credit of $200 (being 1/11 of $2,200). This amount is excluded when calculating the bonus deduction for the small business technology investment boost.

In its 2021–22 tax return, C Co can claim a deduction for $2,000 as the software is a business operating expense. It can also claim a bonus deduction of $400 (20% of $2,000) in its 2022–23 tax return.

On 23 May 2023, C Co purchased another software product that cost $1,650 (GST inclusive). C Co is able to claim an input tax credit of $150.

In its 2022–23 tax return, C Co can claim a deduction of $1,500 as a general business operating expense and a bonus deduction of $300 (20% of $1,500).End of example

Late balancers

For late balancers who incur expenditure between 7:30 pm AEDT 29 March 2022 and the end of your 2021–22 income year, you:

• claim the 100% deduction for this period in your 2021–22 tax return
• claim the bonus 20% incurred in this period in your 2022–23 tax return.

For eligible expenditure incurred between start of your 2022–23 income year and 30 June 2023 you claim both the 100% deduction for the expenditure and the 20% bonus deduction in your 2022–23 tax return.

Example: claiming the boost deduction as a late balancer

D Co Pty Ltd is a small business entity in the 2021–22 and 2022–23 income years. It has a substituted accounting period of 1 August to 31 July (late balancer). On 23 April 2022, D Co set up an annual $2,200 subscription (GST inclusive) to a cloud service to store client and sales data. D Co is able to claim an input tax credit of $200. In its 2021–22 tax return, D Co can claim a deduction for $2,000 as the cloud subscription is a business operating expense. It can also claim a bonus deduction of $400 (20% × $2,000) in its 2022–23 tax return.

D Co renews the subscription on 23 April 2023 at the discounted price of $1,870 (including GST). D Co can claim an input tax credit of $170. Therefore, in its 2022–23 tax return D Co is able to claim a deduction for $1,700 and a bonus deduction of $340 (20% × $1,700).

In summary, D Co can claim a deduction for $2,000 in its 2021–22 tax return and $2,440 in its 2022–23 tax return, comprising a general deduction of $1,700 and 2 bonus deductions that equal to $740 ($400 relating to eligible expenditure in the 2021–22 income year and $340 relating to eligible expenditure in the 2022–23 income year).End of example

Early balancers

For early balancers who incur expenditure between 7:30 pm AEDT 29 March 2022 and the end of your 2021–22 income year, you:

• claim the 100% deduction for this period in your 2021–22 tax return
• claim the 20% bonus incurred in this period in your 2023–24 tax return.

For eligible expenditure incurred in your 2022–23 income year, you claim the 100% deduction for the expenditure in your 2022–23 tax return and the 20% bonus deduction in your 2023–24 tax return.

For eligible expenditure incurred between the start of your 2023–24 income year and 30 June 2023 you claim both the100% deduction for the expenditure and the 20% bonus deduction in your 2023–24 tax return.

Example: claiming the boost deduction as an early balancer

E Co Pty Ltd is a small business entity in its 2022–23 and 2023–24 income years and has a substituted accounting period of 1 January to 31 December. From January 2022, E Co pays monthly software subscription fees of $5,000 (GST-exclusive). These fees are incurred on the first day of each month.

E Co’s software subscription fees for its 2022–23 income year (the period 1 January 2022 to 31 December 2022) are $60,000 ($5,000 × 12 months). This amount is a business operating expense and is deductible in E Co’s 2022–23 tax return.

The software subscription fees incurred after 29 March 2022 will also be eligible expenditure for the purposes of the small business technology investment boost for E Co’s 2022–23 income year. The eligible expenditure is $45,000 ($5,000 × 9 months from April to December 2022). However, because of the delayed claim rule the bonus deduction of $9,000 (20% of $45,000) will be claimed in E Co’s 2023–24 tax return.

E Co will also claim 12 months’ worth of the software subscription fees in relation to the 2023–24 income year as a business operating expense in its 2023–24 tax return ($60,000). However, only $30,000 will be eligible expenditure for the purposes of the small business technology investment boost ($5,000 × 6 months from January to June 2023). Accordingly, E Co will claim a bonus deduction of $6,000 (20% of $30,000) in its 2023–24 tax return.

In total, E Co claimed:

• $60,000 in its 2022–23 tax return

$75,000 in its 2023–24 tax return, comprising of a general deduction of $60,000 and 2 bonus deductions that equal to $15,000 ($9,000 related to eligible expenditure in the 2022–23 income year and $6,000 related to eligible expenditure in the 2023–24 income year).