ATO to SMEs: Delay returns for $1bn in tech tax breaks


Justin Hendry
Administrator

Small businesses wanting to take advantage of tax breaks for new technology worth $1 billion to the Budget bottom line are being told to delay their tax returns, with the legislation for the deductions yet to pass Parliament just days out from the end of the financial year.

The Technology Investment Boost, along with the Skills and Training Boost, was first proposed by the former Morrison government in the March 2022 federal Budget and kept by the Albanese government to encourage technology adoption by small to medium-sized enterprises.

The incentive will allow 3.7 million small businesses with an annual turnover of less than $50 million to access a bonus 20 per cent tax deduction for investments in new technologies between 29 March 2022 and 30 June 2023.

It means that for every $100 spent on “digital enabling items”, such as hardware, software, services that “form and facilitate the use of a computer”, as well as digital media and marketing and e-commerce, businesses will be able to receive a $120 tax deduction.

The tax break will apply to the “total of eligible expenditure of up to $100,000 per income year” and be capped at a maximum bonus deduction of $20,000 per year, so to limit the reduction in tax receipts to around $1 billion.

But the enabling legislation – which will also enact the Digital Games Tax Offset scheme – is still before Parliament more than six months after the bill was introduced, and not scheduled for debate in the Senate this week.

Given the delays, the Australian Taxation Office last week updated official advice that urges businesses wanting to claim the Technology Investment Boost to postpone tax returns or claim the ordinary deduction and amend the return at a future date.

“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 ATO advice reads.

“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 per cent bonus deduction.”

While the reason for the delay is unclear, the omnibus nature of the bill that will enact the bonus incentive could play a role, particularly the $11.5 billion in credits for the Clean Energy Finance Corporation (CEFC).

In the March report by the Senate committee reviewing the bill, Coalition senators accused the government of trying to hide the CEFC amendments “among schedules which nominally have bi-partisan support” and recommended that the amendments be “considered as a separate bill”.

The Coalition senators also raised concerns with the “taxation treatment of digital currency” element, which clarifies that certain digital currencies continue to be “excluded from the income tax treatment of foreign currency” in a report that otherwise gave the legislation the green light.

With passage of the bill looking increasingly unlikely before the end of the financial year, the Australian Information Industry Association has urged the federal government to explain the status of the incentive, which has bipartisan support.

“Businesses have acted in good faith on the advice of the government and the Tax Office… to go and make investment decisions to boost their digital capabilities on the understanding that there was a 120 per cent deductibility allowance against it,” AIIA chief Simon Bush told InnovationAus.com.

“It’s unclear whether this legislation will be passed this financial year, and the government needs to clarify whether those investments will receive the tax treatment and what the status is of this initiative.”

In its pre-Budget statement, the AIIA recommended the Technology Investment Boost – a “key incentive for SMEs to invest in cyber security solutions, training and greater adoption of cloud technology” – be extended for at least the next two years.

That recommendation is shared by the Tech Council of Australia, which in February also called on the government to extend the timeframe beyond June 2023, “noting there will only be a short window of time for small businesses to take advantage of the incentive once the legislation passes”.

InnovationAus.com contacted Treasurer Jim Chalmers for comment on the status of the legislation that will enact the Technology Investment Boost and whether the government intends to bring on the bill for debate before the financial year but did not receive a response before publication.

Do you know more? Contact James Riley via Email.

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