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Subscriptions included in digital adoption boost: ATO clarification

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The ATO has advised that new and ongoing subscription costs can also qualify as eligible expenditure for the purposes of the digital adoption boost. This was not specified in the ATO’s original release on the measure.

The bonus deduction was announced in the October 2022 Federal Budget and was enacted by the Treasury Laws Amendment (2022 Measures No 4) Act 2023.
The additional 20% tax deduction applies to eligible expenditure incurred between 7:30 pm AEDT on 29 March 2022 and 30 June 2023. The boost is for business expenses and depreciating assets and is capped at $100,000 of expenditure per income year. Eligible claimants can receive a maximum bonus deduction of $20,000 per income year. It only available for small and medium business entities – that is, those with aggregated annual turnover of less than $50 million for the income year in which the expenditure is incurred.

Eligible expenditure

In the original release, the ATO stated that eligible expenditure may include, but is not limited to, business expenditure on:

  • 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 or 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; and
  • cyber security – cyber security systems, backup management and monitoring services.

ATO clarification

In its latest release, the ATO states that a good rule of thumb is to consider “if the small business would have incurred the expense if they didn’t operate digitally. That is, if they hadn’t sought to adopt digital technologies in the running of their business”. Using this rule of thumb, the ATO confirms that these costs are eligible:

  • advice about digitising a business;
  • leasing digital equipment; and
  • repairs and improvements to eligible assets that aren’t capital works.

Whether some expenditure is eligible for the boost will depend on its purpose and its link to digitising the operations of the specific small business. For example, “the cost of a multifunction printer would not be eligible if it were intended to only make copies of paper documents. However, it would be claimable if being used to convert paper documents for digital use and storage”.

Importantly, the ATO states that new and ongoing subscription costs can also qualify as eligible expenditure if it relates to a taxpayer’s digital operations: “For example, your clients’ ongoing subscription to an accounting software platform for their business would qualify. Likewise, a new subscription for digital content that is used in developing web content to advertise their business would be eligible.” 

Ineligible expenditure

The original release states that the following expenses are not eligible for the boost:

  • salary and wages;
  • capital works costs (but see depreciation below);
  • financing costs;
  • training or education costs (noting though these may be eligible for the skills and training boost); or
  • expenses that form part of trading stock costs.

Those eligible for the research and development (R&D) tax incentive can claim both the bonus deduction and the R&D notional deduction. The bonus deduction will not affect the amount of the R&D notional deduction. However, the R&D notional deduction amount is the actual expenditure amount, not the expenditure amount and the bonus deduction amount.

Depreciating assets

The original ATO release reminds taxpayers that the bonus deduction can also apply to expenditure on a depreciating asset. The asset must be first used or installed ready for use for a taxable purpose between 7:30 pm AEDT 29 March 2022 and 30 June 2023. This rule does not apply to expenses incurred in the development of in-house software allocated to a software development pool, consistent with current pooling rules.