SMEs urged to take advantage of tax incentive for staff training and digitisation


Chartered Accountants Australia and New Zealand (CA ANZ) is encouraging small businesses to take advantage of the tax incentive they can avail themselves of for conducting employee training and for undergoing digitisation.

This comes after the Federal Parliament passed legislation that will allow a small business to deduct 120 per cent of the cost of training their employees and 120 per cent of the cost of digitalising their business.

“With small businesses facing worker shortages, the incentive to train new and existing staff is a great initiative,” Susan Franks, CA , ANZ Senior Tax Advocate, said. “The 120 per cent deduction for training employees will apply in relation to expenditure incurred by a small business from 29 March 2022.”

Franks, however, reminded businesses that they must comply with a number of guidelines to qualify for the staff training deduction, namely:

  1. The incentive is strictly only for small businesses and does not apply to sole traders, partners and independent contractors.
  2. If the training is not related to an employee’s role in your business, the business will incur an FBT liability.
  3. ‘In-house’ or ‘on-the-job’ training does not qualify and the training must be provided by a recognised provider and be within the scope of their registration.
  4. In-person training must be undertaken in Australia, but digital training can occur anywhere – and overseas employees can only be trained digitally. 
  5. The business needs to pay for training upfront but the deduction for the cost of training will be in their tax return.
  6. The incentive will only be offered until 30 June 2024.

“Throughout the pandemic, nearly nine in 10 Australian businesses adopted new technologies to improve their business continuity,” Franks said. “With single-touch payroll, e-invoicing, and director IDs, small businesses are being asked to do more and more digitally. To encourage digitalisation of small businesses, small businesses can now claim an extra deduction for the cost of digitalising their operations.

“It’s a win for small businesses who’ve already spent money digitalising their business this financial year but for those who haven’t, the window to act is very small,” Franks added. “This 120 per cent deduction only passed Federal Parliament [on 21 June], but small businesses looking to spend money on digitisation only have until June 30 2023 to take advantage of the incentive.

“Small businesses should also be aware; they can only claim the 120 per cent deduction to digitise their business for up to a maximum of $100,000 of expenditure,” she concluded.