Small businesses that incur expenditure for training and upskilling employees will be entitled to a bonus tax deduction. Named the Skills and Training Boost, it is designed to incentivise an employer to utilise external training providers registered in Australia for their employees.

Bonus deduction

For expenditure incurred between 7:30 pm (AEDT) on 29 March 2022 and 30 June 2024, a bonus deduction of 20% is available. For example, a one-day training course provided to employees that costs $10,000 will provide a total deduction of $12,000 for the employer. On top of the requirement for expenditure to be incurred between the relevant dates, the employee must also be enrolled to undertake the training after 7:30 pm (AEDT) on 29 March 2022 to qualify for the bonus deduction. To qualify for the bonus deduction, a small business must have an aggregated turnover of less than $50 million.

Qualifying expenditure

• The expenditure solely relates to employees of a business. Therefore, sole traders may not claim the bonus deduction for themselves. Generally, a sole trader would claim self-education under ITAA 1936 s 82A in their individual tax return. The self-education expense for sole traders also recently underwent legislative amendment, with a full deduction now available to claim (rather than the first $250 being non-deductible).

• As the expenditure is entitled to a bonus deduction for employees, a business must refer to the meaning of an ‘employee’ under the ordinary meaning. This means that expenditure for independent contractors would not be eligible for the bonus deduction.

• Training can be provided either in person or online. When training is delivered in person, there is a requirement that the employees are physically located in Australia. No such requirement exists for employees when the training is online.

• The bonus deduction is intended to be available for a broad range of external training across all industry sectors.

Deductibility

For a business to claim a tax deduction under ITAA 1997 s 8-1, they are required to show that the expenditure is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. Specifically, the economic results achieved by a transaction may be examined to cast some light on whether the outgoing is capable of being regarded as desirable or appropriate from the point of view of the business ends of the business (Gwynvill Properties case of 1986). Practically, in most cases, the staff training will be tax deductible. However, non-deductible training may bring an additional FBT liability.

Training must be completed by external providers

Expenditure for training is only eligible for the bonus deduction if it is provided by a training entity that is registered with the following:

• Australian Skills Quality Authority

• Tertiary Education Quality and Standards Agency

• Victorian Registration and Qualification Authority, or

• Training Accreditation Council of Western Australia.

In-house or on-the-job training is excluded from the bonus deduction.

Also, the training provided to employees must be within the scope of the registered training provider’s registration to be eligible for the bonus deduction. A small business can check whether the staff training is within the scope of the training provider’s registration by reviewing the www.training.gov.au website. The Tertiary Education Quality and Standards Agency also maintains a register of higher education providers on its website.

Direct and indirect expenditure

Staff training costs qualify for the bonus deduction if they are charged directly from the training provider, including costs incidental to the training. However, these incidental costs, such as textbooks or equipment, must be necessary for the course and charged directly by the training provider.

Indirect expenditure, such as commissions of fees, ordinarily charged by an intermediary on behalf of the registered training body, is ineligible for the bonus deduction.

Claims in the 2021–22 income year

If an employer provides external staff training to employees in the 2021–22 income year, they will not be able to receive the 20% bonus deduction until lodging the 2022–23 income tax return.

However, for expenses incurred in the 2022–23 and 2023–24 income years, the bonus deduction may be included in the tax return where the expense is incurred.

Other considerations

Training new employees

The announcement also allows for the expenditure to be provided to train a new employee. This will assist those employers who provide general onboarding through an external provider. Also, a new employee who requires additional training to upskill to their newly employed role will be eligible for the bonus deduction.

Non-commercial business loss rules

The bonus deduction may be of no immediate benefit where a business sole trader or partnership is susceptible to ITAA 1997 Div 35.

If you have any questions, please contact our office. We would be delighted to assist you further.