Bonus deduction for employee training proposal

To stem the tide of the current workforce shortage in many industries, the government has proposed a new temporary initiative that would give small businesses access to a bonus tax deduction equal to 20% of certain employee training expenditure. This proposal is currently in the draft stage and undergoing consultation, and as such any deduction will not be available until the measure becomes law.

As a part of its strategy to address the current skills shortage and future-proof Australia’s workforce by building better trained and more productive workers, the Federal Government has proposed to implement a temporary “skills and training boost” initiative. This initiative proposes to give small businesses access to a bonus deduction equal to 20% of eligible expenditure on certain training for employees, both existing and new, between 29 March 2022 and 30 June 2024.

The bonus deduction would be available to all entities that meet the definition of a small business entity (ie those with an aggregated annual turnover of less than $50 million) in the income year in which the eligible expenditure is incurred.

Under the proposed measure, eligible expenditure would need to satisfy the following criteria:

• expenditure must be for training employees, either in-person in Australia, or online;
• expenditure must be charged, directly, or indirectly, by a registered training provider and be for training within the scope (if any) of the provider’s registration – although any additional costs associated with the provider invoicing through an intermediary such as commissions or other fees would not be eligible for the bonus deduction;
• the registered training provider must not be the small business itself or an associate of the small business;
• the expenditure must already be deductible under taxation law (ie the training must be necessarily incurred in carrying on a business for the purpose of gaining or producing income) – the deductible training may be either an operating expense or of a capital nature, although GST is usually excluded;
• expenditure must be incurred within a specific period (between 7.30 pm legal time in the ACT on 29 March 2022 and 30 June 2024); and
• expenditure must be for the provision of training, where the enrolment or arrangement for the provision of the training occurs at or after 7.30 pm legal time in the ACT on 29 March 2022.

This initiative is only intended to cover employees, and as such, the bonus deduction would not be available for the training of non-employee business owners, such as sole traders, partners in a partnership and independent contractors who are not employees of the business within the ordinary meaning. In addition, the requirement for the expenditure to be incurred on external training means that the cost of any in-house or on-the-job training would not be eligible for the bonus deduction. According to the government, this is because the bonus deduction is not intended to cover general business operating costs.

It's proposed that training providers wishing to take advantage of this measure must be registered with at least one of the following four government authorities to ensure quality and integrity:

• Australian Skills Quality Authority (ASQA);
• Tertiary Education Quality and Standards Agency (TEQSA);
• Victorian Registration and Qualifications Authority; or
• Training Accreditation Council of Western Australia.

Example

Company A is a qualifying small business entity and has hired a new employee, Trevor. The business is keen to upskill him to take on more complex work. The business pays $5,500 (incl GST) for a course with a registered training provider whose scope of registration includes the specific skill, held on 1 December 2022. The bonus deduction in addition to the $5,000 (excl GST) that Company A can deduct is $1,000 (20% of $5,000).

It should be noted that this proposal is currently in the draft stage and undergoing consultation, and as such the bonus deduction will not be available until the measure becomes law. No timeframes have been given as to when that will occur. However, it is likely that when passed, the legislation will be retrospective (ie it will encompass expenditure between 7.30 pm legal time in the ACT on 29 March 2022 and 30 June 2024).