The Government will provide an extra deduction of 20% for small businesses that spend on improving digital capabilities and upskilling employees. The Government further proposes PAYG instalment changes to assist with cash flow to businesses. The Government has also proposed changes in relation to carbon tax treatment to assist primary producers in smoothing their income.
Skills, training and digital adoption boosts
The Government has focused on incentivising businesses to upskill employees by providing an additional 20% deduction for certain training expenditure incurred by businesses with aggregated turnover less than $50 million. The deduction will apply to expenditure incurred between 7.30 pm (AEDT) on 29 March 2022 and 30 June 2024. With a 25% income tax rate applicable to eligible small businesses from 2023, the additional deduction effectively provides these businesses with a 30% tax saving.
The Government will also continue its focus on adoption of digital technologies by providing an additional 20% deduction for business expenses and depreciating assets supporting digital adoption by businesses with aggregated turnover less than $50 million. The additional deduction will apply to expenditure incurred between 7.30 pm (AEDT) on 29 March 2022 and 30 June 2023. The boost is subject to an annual cap of $100,000 expenditure for the 2022 and 2023 income years, equating to a tax saving of $5,000 per year. This similarly achieves an effective tax saving rate of 30% on eligible expenditure.
The additional deduction for expenditure incurred in the 30 June 2022 income year will be claimable in the 2023 income tax return.
Changes to PAYG instalment system
Small businesses, sole traders and investors will be given temporary tax instalment relief to assist with additional cash flow. The measures include a change in the GDP uplift factor used for PAYG and GST instalments from 10% to 2%, commencing from the 30 September 2022 quarter and throughout the 2023 income year.
The Government will also begin consultation on PAYG modernisation for businesses on an opt-in basis from 1 January 2024. This will involve developing an additional methodology that companies can choose to adopt which will be calculated based on current financial performance, extracted from business accounting software, with some tax adjustments. The purpose of this model would be to better align PAYG instalments with what is likely to be their taxable income and may provide cash flow benefits to taxpayers who regularly and accurately calculate their tax on an ongoing basis.
Concessional tax treatment for sale of carbon credits and biodiversity certificates
From 1 July 2022, the Government will allow proceeds from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates (issued under the Agricultural Biodiversity Stewardship Market scheme) from on-farm activities to be treated as primary production income. This will allow such income to benefit from tax averaging measures and the Farm Management Deposit Scheme available to primary producers which can assist in smoothing their revenue over multiple income years. The Government will also provide a deferral benefit to eligible primary producers by taxing proceeds in the year of sale of ACCUs and biodiversity certificates.