Small business deductions worth $1.55 billion appear in the 2023 tax return but are yet to pass into law

Australian lawmakers only have a handful of days to enact $1.55 billion in ‘bonus’ tax deductions before the new financial year begins, leading the tax office to provide new guidance to small businesses banking on those kickbacks for their 2022-2023 tax return.

Announced in March 2022, the Technology Boost and Skills and Training Boost policies promise small businesses an extra 20% tax deduction on eligible digital upgrades and upskilling courses for staff.

Those bonus deductions each cover up to $100,000 in spending, effectively granting SMEs up to $20,000 off their overall tax bill.

Spending incurred between 7.30pm on March 29, 2022 to 30 June 2023 is eligible for the Technology Boost, with the Skills and Training Boost covering expenditures up to 30 June 2024.

Both measures are included in the Australian Taxation Office’s 2023 company tax return form.

But those boosts are not yet law, and legislation that would enact both boosts is currently before the Senate.

Both the Coalition, which introduced the measures in the 2022-2023 budget, and the Labor government have expressed their support for those measures.

However, with only seven sitting days in the Senate before the turn of the financial year and a litany of other bills on the agenda, there is precious little time for the boosts to become law before the end of the financial year.

How should I apply for the bonus tax deductions?

The Australian Tax Office is unequivocal: Small businesses cannot claim those bonus deductions until they become law, even if both the Technology Boost and Skills and Training Boost policies exist on the 2023 company tax return form.

Given the potential for the Senate to pass those laws beyond 30 June, the ATO has issued new advice for would-be claimants.

“If you intend to claim the small business technology investment or skills and training boost (bonus deduction), you can delay lodging your 2023 tax return until the law is enacted,” the tax office now says.

“Alternatively, you can lodge your return and claim your ordinary deduction for the technology investment or skills and training expenditure.

“Then, when the law is enacted, you amend your return to claim the 20% bonus deduction.”

It is anticipated the bill will apply special rules to businesses with balancing dates other than 30 June.

What is holding up the bills?

A handful of mitigating factors could derail the bill’s passage before 30 June.

Both bonus tax deductions are included in the Treasury Laws Amendment (2022 Measures No. 4) Bill, which also contains a hotly contested proposal to funnel $11.5 billion into the Clean Energy Finance Corporation, and measures enacting the less controversial Digital Games Tax Offset, among others proposals.

Continual debate over the Clean Energy Finance Corporation proposal could have unintended knock-on effects for the bonus small business tax deductions, blowing out the timeline into the new financial year.

Separately, an amendment proposed by independent Senator David Pocock could alter the bill’s trajectory.

Pocock has proposed to extend the Technology Boost through the 2023-2024 financial year, while dropping the annual business turnover threshold to $10 million, down from $50 million.

If agreed to by the Senate, that amendment would help small businesses caught out by supply chain disruptions that kept them from upgrading their systems this financial year.

The measure has received the support of business groups including the Australian Chamber of Commerce and Industry.

However, it appears unlikely to gain a foothold as lawmakers weigh the benefits of extra business expenditure against the need to curtail inflationary pressures.

Businesses would face further uncertainty if the boosts were ultimately not passed into law — an unlikely scenario given their bipartisan support.

SmartCompany has contacted the Australian Taxation Office for comment.