Small business skills and training boost

Example: claiming the boost deduction as a normal balancer

B Co Pty Ltd (B Co) is a small business entity. It operates on an income year that begins on 1 July and ends on 30 June the following year (a normal balancer).

On 4 May 2022, B Co pays $1,000 (GST exclusive) for an employee to undertake training. The full $1,000 is deductible under the existing tax law as a business operating expense. As B Co meets all the criteria for the bonus deduction, the bonus deduction will be calculated as 20% of $1,000. That is, $200.

The cost of training ($1,000) should be claimed as a general deduction in B Co's 2022 tax return because this is the income year in which the expenditure is incurred.

As the training costs were incurred between 7:30 pm (by legal time in the ACT) on 29 March 2022 and the end of B Co's 2022–23 income year, the bonus deduction ($200) should be claimed in B Co's 2022–23 tax return. This is a result of the delayed claiming rules.

One year later, on 4 May 2023, B Co pays $3,000 (GST inclusive) for 3 new employees to undertake the same training. The full $3,000 is deductible as a business operating expense. Provided B Co meets the other eligibility criteria for the boost, the bonus deduction is 20% of $3,000. That is $600.

The training cost ($3,000) will be claimed as a general deduction in B Co's 2022–23 tax return because this is the income year in which the expenditure is incurred. The bonus deduction ($600) should also be claimed in B Co's 2022–23 tax return.

Therefore, B Co will claim:

• 1,000 in its 2021–22 tax return

$3,800 in its 2022–23 tax return. This is made up of the general deduction for the cost of training incurred on 4 May 2023 ($3,000), as well the bonus deductions for expenditure incurred on 4 May 2022 ($200) and 4 May 2023 ($600).

Example: claiming the boost deduction as a late balancer

Green Gracey Pty Ltd (Green Gracey) is a small business entity that operates a café serving food and beverages. Green Gracey operates on an income year that begins on 1 August and ends on 31 July the following calendar year.

On 4 May 2022, Green Gracey pays $1,000 (GST exclusive) for its employees to undertake safe food handling training. The full $1,000 is deductible as a business operating expense. Assuming other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $1,000. That is, $200.

The cost of training ($1,000) should be claimed as a general deduction in Green Gracey’s 2021–22 tax return because this is the income year in which the expenditure was incurred.

As the training costs were incurred between 29 March 2022 and the end of Green Gracey’s 2021–22 income year (ending 31 July 2022), under the relevant special rules for initial bonus deductions, the bonus deduction ($200) should be claimed in Green Gracey’s 2022–23 tax return. This results in a delayed claim, where a bonus deduction is claimed in the year following the year in which expenditure was incurred.

One year later, on 4 May 2023, Green Gracey pays $300 (GST exclusive) for 3 new employees to undertake the same safe food handling training. The full $300 is deductible as a business operating expense. The bonus deduction will be calculated as 20% of $300. That is, $60.

The cost of training ($300) should be claimed as a general deduction in Green Gracey’s 2022–23 tax return because this is the income year in which the expenditure was incurred.

As the training costs were incurred in Green Gracey’s 2022–23 income year (ending 31 July 2023), under the relevant special rules for initial bonus deductions, the bonus deduction ($60) should also be claimed in Green Gracey’s 2022–23 tax return. This results in an outcome consistent with the general rule that deductions are claimed in year in which expenditure is incurred.

On 4 May 2024, Green Gracey pays $600 (GST exclusive) for three junior employees to undertake barista training. The full $600 is deductible as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $600. That is, $120.

The cost of training ($600) should be claimed as a general deduction in Green Gracey’s 2023–24 tax return because this is the income year in which the expenditure was incurred.

Expenditure in the 2023–24 income year is covered by the later bonus deduction provision. As the costs were incurred in Green Gracey’s 2023–24 income year and before 30 June 2024, the bonus deduction should be claimed in Green Gracey’s 2023–24 tax return in accordance with the later bonus deduction provision. This results in an outcome consistent with the general rule that deductions are claimed in year in which expenditure is incurred.

Green Gracey will therefore claim the following amounts:

• $1,000 in its 2021–22 tax return. This is the general deduction for the cost of training incurred on 4 May 2022
• $560 in its 2022–23 tax return. This is made up of the general deduction for the cost of training incurred on 4 May 2023 ($300), as well as the bonus deductions for expenditure incurred on 4 May 2022 ($200) and 4 May 2023 ($60)

$720 in its 2023–24 tax return. This is made up of the general deduction ($600) and the bonus deduction for the expenditure incurred on 4 May 2024 ($120).

Example: claiming the boost deduction as an early balancer

Cockablue Pets operates on an income year that begins on 1 January and ends on 31 December of the same calendar year (an early balancer). Its 2022–23 income year starts on 1 January 2022.

Cockablue Pets decide to expand their services to also offer dog grooming services. On 28 July 2022 they pay $14,000 (GST exclusive) for 2 of their employees to undertake specialised pet grooming training. The full $14,000 is deductible as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $14,000. That is, $2,800.

The cost of training ($14,000) should be claimed as a general deduction in Cockablue Pets’ 2022–23 tax return because this is the income year in which the expenditure was incurred.

As the costs were incurred between 29 March 2022 and the end of Cockablue Pets’ 2022–23 income year (ending 31 December 2022), the bonus deduction ($2,800) should be claimed in Cockablue Pets’ 2023–24 tax return in accordance with the special rule for early balancers. This results in a delayed claim, where a bonus deduction is claimed in the year following the year in which the expenditure was incurred.

Cockablue Pets experiences a lot of demand for their new pet grooming services. In response to this demand, they hire 3 new employees in March 2023. The new employees have experience in animal care but no qualifications in pet grooming. Due to the demand for pet grooming services, On 10 April 2023, Cockablue Pets pays $21,000 (GST exclusive) for their new employees to also undertake the specialised pet grooming training. The full $21,000 is deductible as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $21,000. That is, $4,200.

The cost of training ($21,000) should be claimed as a general deduction in Cockablue Pets’ 2023–24 tax return because this is the income year in which the expenditure was incurred.

The bonus deduction ($4,200) should also be claimed in their 2023–24 tax return. As the costs were incurred in Cockablue Pets’ 2023–24 income year (ending 31 December 2023), the bonus deduction should be claimed in Cockablue Pets’ 2023–24 tax return in accordance with the special rule for early balancers.

Cockablue Pets opens a new combined veterinary clinic and dog grooming location in March 2024. As a result, they hire 2 new junior employees who have limited experience in professional animal care but a desire to build a long-term career in the industry. On 8 April 2024 Cockablue Pets pays $6,000 (GST exclusive) for their new employees at the new clinic to undertake training in animal care. The full $6,000 is deductible as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $6,000. That is, $1,200.

The cost of training ($6,000) should be claimed as a general deduction in Cockablue Pets’ 2024–25 tax return because this is the income year in which the expenditure was incurred.

Expenditure in the 2024–25 income year is covered by the later bonus deduction provision. As the costs were incurred in Cockablue Pets’ 2024–25 income year and before 30 June 2024, the bonus deduction ($1,200) should be claimed in Cockablue Pets’ 2024–25 tax return in accordance with the later bonus deduction provision. This results in an outcome consistent with the general rule that deductions are claimed in year in which expenditure is incurred.

This means that Cockablue Pets will claim the following amounts:

• $14,000 in its 2022–23 tax return. This is the general deduction for the cost of training incurred on 28 July 2022
• $28,000 in its 2023–24 tax return. This is made up of the general deduction for the cost of training incur red on 10 April 2023 ($21,000), as well as the bonus deductions for expenditures incurred on 28 July 2022 ($2,800) and 10 April 2023 ($4,200).

$7,200 in its 2024–25 tax return. This is made up of the general deduction and the bonus deduction for the expenditure incurred on 8 April 2024.

Example: calculating the boost for external training

Cockablue Pets Pty Ltd is a small business entity that operates a veterinary centre. The business takes on a new employee to assist with jobs across the centre. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse.

The business pays $3,500 (GST exclusive) for the employee to undertake external training. The bonus deduction is calculated as 20% of 100% of the amount of expenditure that can be deducted under another provision of the taxation law. In this case, the full $3,500 is deductible as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700.

The business also pays $4,400 (GST inclusive) for 2 of its employees to attend an external training session. Cockablue Pets is registered for GST and entitled to claim $400 as a GST credit in their BAS. The eligible expenditure for the small business skills and training boost is the amount of expenditure less the GST amount claimed as an input tax credit ($4,000). The bonus deduction is calculated as 20% of $4,000, which is $800.

Example: calculating the boost for employee and owner

Fix-A-Pipe is a small business running plumbing services. The business pays $2,000 (GST exclusive) for the owner Terry and one of its employees to take some training courses. Terry's training course costs $800 and the employee's training course costs $1,200.

The bonus deduction is available to eligible small businesses that incur expenditure for training employees. As Terry is the owner of the business and not an employee, the business must apportion the training costs for calculating the bonus deduction. The bonus is calculated as 20% of $1,200, which is $240.

As part of the employee's training course, Fix-A-Pipe is also charged by the training provider for the cost of books and material and some practice equipment used in the course ($88 GST inclusive). Those incidental costs are also eligible expenditure for the bonus deduction as they're directly charged by the training provider.

Fix-A-Pipe is registered for GST and can claim 1/11 of $88 (being $8) as a GST input tax credit. Therefore, they will calculate the bonus as 20% of $80, which is $16.

Example: calculating the boost for a university course

D Co Pty Ltd is an accounting firm. It has been paying directly to a university since February 2021 for an employee to complete an accounting course. The employee enrolled in subjects on 1 February 2022 and 15 July 2022. Enrolments into courses or classes within the period of 29 March 2022 to 30 June 2024 will result in the expenditure on those courses being eligible for the bonus deduction, provided that the other criteria are met, including that the small business incurs the expenditure within the same period. The broader degree enrolment prior to 29 March 2022 does not preclude this outcome. Therefore, the expenditure incurred in relation to the employee's enrolment on 15 July 2022 is eligible for the bonus deduction, whereas the enrolment on 1 February 2022 is ineligible.

Example: reimbursement payment to employee

Bill is an employee of an IT company. His employer supports staff taking training courses of their selection and agrees to reimburse the payment to them. In January 2022, Bill enrols for term 1 in a TAFE Advanced developer course to further upskill his knowledge. He pays $500 (GST exclusive) for term 1 and is reimbursed by his employer the following month. In term 2 starting in April 2022, he pays $500 (GST exclusive) again and is again reimbursed by his employer the following month.

The payment for term 1 was incurred prior to 29 March 2022 so it is not eligible for the bonus deduction. The payment for term 2 was incurred between 29 March 2022 and 30 June 2024 and charged indirectly by the provider of the training through reimbursing the employee the tuition fees. Therefore, the expenditure is eligible for the bonus deduction, provided the other criteria are met. The bonus deduction is calculated as 20% of $500, which is $100.