Expenditure eligible for the technology investment boost — new ATO guidance

This week the ATO issued some further guidance on the types of expenditure that are eligible for the technology investment boost.

The technology investment boost provides eligible business taxpayers — with an aggregated annual turnover of less than $50 million — with a bonus deduction for eligible expenditure incurred in relation to the entity’s digital operations or for digitising the entity’s operations.

The expenditure must be incurred between 7.30 pm (by legal time in the ACT) on 29 March 2022 and 30 June 2023.

The bonus deduction for each of the 2021–22 and 2022–23 income years is the lower of $20,000 or 20 per cent of eligible expenditure.

For more detail about the boost refer to the Banter Blog article Small business technology boost and training boost now enacted — what it means for 30 June 2023.

New ATO guidance — what expenditure is eligible?

The ATO cannot provide an exhaustive list of eligible expenditure, but it states that a good indicator of eligibility is to consider if the entity would have incurred the expense if it did not operate digitally. That is, if it had not sought to adopt digital technologies in the running of its business. Using this rule of thumb, these costs are eligible (according to the ATO):

• advice about digitising a business
• leasing digital equipment
• repairs and improvements to eligible assets (other than capital works).

Eligibility will depend on the purpose of the expenditure and its link to digitising the business’s operations. For example, expenditure on a multifunction printer is eligible if the machine is being used to convert paper documents for digital use and storage, but it is not eligible if the printer is intended to only make copies of paper documents.

New and ongoing subscription costs may also qualify for the boost — e.g. an ongoing subscription to an accounting software platform or a new subscription for digital content that is used in developing web content to advertise the business.

The ATO expects businesses to keep explanations of how the expenses relate to digitising the business and accurate records of all claims for the bonus deductions.

Previously available guidance on eligible expenditure

The legislation — in s. 328-460 of the Income Tax (Transitional Provisions) Act 1997 — provides that to be eligible for the boost, the expenditure must be wholly or substantially for the purposes of [the business’s] digital operations or digitising [the business’s] operations.

The law does not provide any further clarity. However the Explanatory Memorandum contains practical guidance that eligible expenditure includes:

• digital enabling items — computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks
• digital media and marketing — audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design
• e-commerce — goods and services supporting digitally ordered or platform enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud‑based services, and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth, or
• cyber security – cyber security systems, backup management and monitoring services.

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