What type of taxpayers are eligible to apply the temporary boosts?

The two new boosts introduced are temporary measures aimed at encouraging smaller businesses to invest in their productivity. These boosts are available only to small business entities (SBEs) or taxpayers who would qualify as SBEs if the aggregated turnover threshold were $50 million instead of the current $10 million threshold.

A taxpayer meeting the $50 million turnover threshold is referred to as a 'small or medium business.' It's essential to note that to be eligible for either boost deduction, the taxpayer must be categorized as a small or medium business in the income year when they incur the relevant expenditure. For instance, if the expenditure occurs in the 2023 income year, the taxpayer must be considered a small or medium business for that specific year.

In more detail, a taxpayer will be considered a small or medium business for a particular income year if they are actively engaged in business during that year and meet at least one of the following turnover tests.

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Aggravated turnover for the previous income year was less than $50 million

To be eligible for the boosts, the taxpayer must satisfy the 'previous year turnover test,' which means their aggregated turnover in the previous income year must have been less than $50 million. This condition requires the taxpayer to have been engaged in business during the previous income year and to have achieved an aggregated turnover of less than $50 million during that period.

Aggregated turnover for the current income year is likely to be less than $50 million

To meet this condition, the taxpayer must make an objective assessment of whether their aggregated turnover for the current income year is likely to be below $50 million. This evaluation should be based on estimates made either on the first day of the income year or on the day the business commenced if it started operating during the current year.

Several factors should be taken into account when making this determination, such as:

• aggregated turnover in previous years
• different sales patterns observed in the business
• turnover of staff
• adjustments to hours of operation
• the impact of location, for example, if the area is affected by drought or bushfires
• industry decline and increased competition

These factors will help the taxpayer make a well-informed judgment regarding whether their aggregated turnover is likely to fall below the $50 million threshold for the current income year.

Aggregated turnover for the current income year is actually less than $50 million

If a taxpayer cannot meet either the 'previous year turnover test' or the 'likely current year turnover test,' they still have the opportunity to pass the aggregated turnover test and consequently qualify as a small or medium business. This can happen when the taxpayer's actual aggregated turnover for the current income year, as calculated at the end of that year, is below $50 million. In such cases, they would be considered a small or medium business, despite not meeting the other mentioned conditions.

The new Skills and Training Boost available for the cost of training employees

The Skills and Training Boost is a temporary tax incentive aimed at assisting small or medium businesses. It offers a 20% bonus deduction for eligible expenditure on external training for their employees. The Government introduced this boost to help these businesses enhance their workforce's skills and productivity by investing in employee training.

The Skills and Training Boost will be applicable for eligible expenses incurred from 7:30 pm (ACT time) on 29 March 2022 to 30 June 2024. To qualify for the 20% bonus deduction, a business taxpayer must meet the following general requirements:

• the taxpayer must incur eligible expenditure for the purpose of the Skills and Training Boost
• the taxpayer must claim the Boost deduction in the correct income year

The following will consider the eligibility requirements that must be satisfied by business taxpayers to claim the Skills and Training Boost.

When will expenditure be eligible for the Skills and Training Boost?

The Skills and Training Boost offers a 20% bonus deduction solely for eligible expenses associated with providing external training to employees of small or medium businesses. For expenditure to qualify as 'eligible expenditure' under the Skills and Training Boost, the following conditions must be met:

The employer must be a small or medium business for the income year in which the expenditure is incurred

To be eligible for the Skills and Training Boost, the taxpayer must be a small or medium business for the income year in which the underlying expenditure is incurred.

The expenditure must be incurred within the specified time period

The Skills and Training Boost deduction is a temporary measure that is only available for eligible expenditure incurred between 7:30 pm (ACT time) on 29 March 2022 and 30 June 2024.

Additionally, training expenditure can only be eligible for the Skills and Training Boost where the enrolment or arrangement for the provision of the training occurs at or after 7:30 pm (ACT time) on 29 March 2022.

The expenditure must be for the external training of employees

The Skills and Training Boost deduction is only available in relation to expenditure incurred on external training for the employees of small or medium businesses. For these purposes, an ‘employee’ takes its ordinary meaning, which broadly means an individual who contracts to provide their labour to an employer, which is often referred to as a contract of service.

External training expenditure can qualify for the Skills and Training Boost if it is incurred by an employer for the provision of either:

• in-person training for employees located in Australia; or
• online training for employees

As mentioned earlier, there is no stipulation that employees must be physically present in Australia while undergoing online training. Hence, employees who are temporarily overseas for operational purposes or working remotely from abroad can still participate in online training that may be eligible for the Skills and Training Boost.

Additionally, training can be conducted in a hybrid format, combining both in-person and online elements. In situations where the in-person component is delivered to employees situated in Australia, both components may qualify for the Skills and Training Boost.

The training expenditure must be fully deductible for the employer

To be eligible for the Skills and Training Boost, the expenditure must be completely (i.e., 100%) deductible for the employer under another taxation provision. The new legislation clarifies that the expenditure used to calculate the Boost deduction can be deductible in any income year as long as it is fully deductible.

In most cases, the cost of training employees is considered a regular business operating expense incurred while conducting the employer's business, making the training expenditure generally fully deductible.

It's important to note that if a deduction for the training cost is spread over time (e.g., for certain capital expenditure), the Skills and Training Boost 20% bonus deduction is calculated based on the total deductible amount and claimed upfront in the relevant income year. This means the 20% bonus deduction is claimed immediately, even if the underlying training expenditure deduction is spread over multiple years.

In the majority of situations, employer expenditures for providing training to employees will be fully deductible, whether claimed upfront or over multiple income years. However, employers should be mindful of potential fringe benefits tax (FBT) liability. For instance, an FBT liability might arise if the training lacks sufficient relevance to the employee's current income-earning activities, subject to the availability of concessional FBT treatment.

The training must be provided by a registered training provider

In order for training expenditure to be eligible for the Skills and Training Boost, the training must be provided by a registered training provider. More specifically, for training to be eligible for the Skills and Training Boost, at the time the expenditure is incurred the provider must be a ‘registered body’ of one of the following kinds:

• A ‘registered higher education provider’ that is registered with the Tertiary Education Quality and Standards Agency; or
• A registered Vocational Education and Training provider (‘registered VET provider’), being a registered body of least one of the following kinds:
• an NVR registered training organisation that is registered with the Australian Skills Quality Authority;
• a registered education and training organisation that is registered with the Victorian Registration and Qualifications Authority; or
• a registered training provider that is registered with the Training Accreditation Council of Western Australia.

Importantly, where a training provider is a registered VET provider, the training must be within the provider’s scope of registration (at the time the expenditure is incurred). This means the training is of a type that the relevant organisation is registered to provide. However, it does not matter whether that training will result in a formal qualification, as long as it is within the registered VET provider’s scope of registration.

The expenditure must be charged to the employer by the registered training provider (directly or indirectly)

For training expenses to be considered 'eligible expenditure' under the Skills and Training Boost, the employer must have incurred these expenses and been charged for them by the registered training provider, either directly or indirectly.

It is worth mentioning that the training expenditure may encompass additional costs related to the training when charged by the registered training provider. For instance, expenses for books or equipment essential for a training course can be eligible expenditure, but this is only applicable if the training provider charges the employer for these specific costs.

Common examples of expenditure that may be eligible for the Skills and Training Boost

The following table provides a non-exhaustive list of expenditure that may qualify for the 20% bonus deduction under the Skills and Training Boost.

Importantly, expenditure considered ‘eligible’ within the table assumes the relevant eligibility requirements of the Skills and Training Boost have been satisfied (refer above). For example, only expenditure that is charged to the employer, directly or indirectly, by the registered training provider can qualify as ‘eligible expenditure’.

Skills and Training Boost eligibility checklist

The following table summarises the eligibility requirements to ensure employers are correctly claiming the 20% bonus deduction under the Skills and Training Boost.

How do employers claim a deduction for the Skills and Training Boost?

The Skills and Training Boost provides a 20% bonus deduction that is in addition to any regular deduction a small or medium business can claim for eligible expenditure they have incurred.

The bonus deduction amount is equal to 20% of the eligible expenditure incurred by the eligible small or medium business. Unlike the Technology Investment Boost, there is no cap on the Skills and Training Boost. This means that the employer is entitled to a 20% bonus deduction for the entire eligible expenditure incurred, regardless of the amount.

Deductions for the Skills and Training Boost can be claimed in the 2023 income year and/or the 2024 income year, depending on the year in which the eligible expenditure was incurred by the small or medium business.

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