20% Skills and Training Boost for Small Business

In March 2022, the Government at the time introduced a 20% additional income tax deduction for qualifying training expenditure for existing and new employees, incurred by a qualifying small business, between 7.30pm Canberra time on 29 March 2022 and 30 June 2024.

Almost 15 months later, the legislation has finally been passed by both Houses of Parliament and awaits Royal Assent (at the time of writing).

This additional deduction may be beneficial for those employers who are upskilling their employees through formal vocational training or directly paying employees’ higher education course fees.

While the name of this concession seems very broad, the application only relates to specific businesses incurring eligible expenditure with registered training providers operating within their ‘scope’ (where applicable) at the time the expenditure is being incurred.

The narrow nature, reflected in the detail of this concession, will exclude much of the employee training already being undertaken by small business, for example with professional associations to maintain licenses and registrations, and other non registered organisations.

Why was this initiative implemented?

The Government (both at the time of introduction of the legislation and when it was finally passed) is keen to have small business invest in the growth and development of their existing and new employees.

This initiative, together with the Technology Investment Boost (which expires 30 June 2023), was designed to encourage small business to further invest in and update the skills of their people and their technology infrastructure.

 Who qualifies for the extra 20% deduction?

Eligible small businesses are those that, together with their connected entities and affiliates, have an aggregated annual turnover of less than $50m. The connected entity and affiliate rules are complex, and if a business is concerned that they may be close to this threshold, we recommend speaking to your accountant to confirm eligibility.

Note, this concession only applies to expenditure to improve the skills of employees – expenditure incurred to upskill sole traders, partners or independent contractors does not qualify for the additional 20% skills and training boost.

What expenditure qualifies for the extra 20% bonus deduction?

Registered Training Providers

For eligible small businesses, training expenditure must be undertaken directly and indirectly with registered training providers, who are registered at the time the training expenditure is incurred with at least one of the following Government entities:

• Tertiary Education Quality and Standards Agency (within the meaning of the Tertiary Education Quality and Standards Agency Act 2011); https://www.teqsa.gov.au/national-register
• Australian Skills Quality Authority (ASQA) (within the meaning of the National Vocational Education and Training Regulator Act 2011); https://www.asqa.gov.au/
• Victorian Registration and Qualifications Authority (within the meaning of the Education and Training Reform Act 2006 (Vic)); https://www.vrqa.vic.gov.au/Pages/default.aspx
• Training Accreditation Council of Western Australia (within the meaning of the Vocational Education and Training Act 1996 (WA)). https://www.wa.gov.au/organisation/training-accreditation-council

All registered training providers, apart from those registered under the Tertiary Education Quality and Standards Agency (who have no scope restrictions), will have a ‘scope’ to their registration. Only training within this ‘scope’ at the time the expenditure is incurred will qualify for the additional 20% income tax deduction. Small businesses can check whether training is within the scope of a registered provider’s registration via the www.training.gov.au website.

Where a registered training provider provides services within their scope to an eligible small business through a third party or intermediary, only the fees charged by the registered training provider for the training can be claimed as part of the 20% boost by the small business – this may include books and other study aids, but only where they are provided directly by the registered training provider (not the third party). Any commission or fees added by the third party to the registered training providers fees and on-charged to the eligible small business are unable to be included in the calculation of the 20% skills and training boost.

Other qualifying expenditure requirements

Training can be face to face within Australia, or on-line, where there is no restriction on the employees being in Australia at the time the online training is being undertaken.

The additional 20% bonus will apply to expenditure that is already deductible to the business, either under the normal business deductibility provisions, or under capital allowance provisions.

The expenditure must have been incurred between 7.30pm on 29 March 2022 and 30 June 2024, but may relate to courses of study commenced prior to this date, where the enrolment/subject/course costs were incurred after the qualifying commencement time and date. For example, an employer may be directly paying the course fees for a Masters University degree (with a registered higher education provider) on behalf of an employee, where the degree commenced prior to 29 March, 2022, but individual subject fees were incurred after this date – individual subject fees incurred post 29 March 2022 until 30 June 2024 would qualify for the additional 20% boost.

There is no requirement that a formal qualification be received at the end of the training.

What expenditure doesn’t qualify?

Expenditure incurred with organisations that are not registered training providers, as described above, will not qualify for the additional 20% deduction under the Skills and Training bonus.

Only ‘external’ training expenditure qualifies for this deduction - in house training, on the job training or training provided by associates or related parties, will not qualify as eligible expenditure for the additional 20% bonus income tax deduction. Note, the definition of associate is extensive and includes a relative, spouse or partner of an entity or person, a trustee of a trust that benefits an entity or person and a company that is sufficiently influenced by an entity or person.

If GST applies to any of the training expenditure incurred, the GST component of the fee is excluded from the calculation of the Skills and Training 20% boost.

When can you claim the extra 20% Skills and Training Boost deduction

As these concessions commenced on 29 March 2022, there may be eligible small businesses that have incurred eligible training expenses in the 2022 financial year (or 2023 for earlier balancers), where their income tax returns for these periods have already been lodged.

If your business has a 30 June balance date, the bonus 20% deduction for the skills and training expenditure incurred between 7.30pm 29 March 2022 and 30 June 2022 will be claimed in the 2023 income tax return. The additional 20% bonus will then be claimed on any further eligible expenditure in either of the 2022/2023 or 2023/2024 income tax returns, based on the date the expenditure was incurred.

For ‘late balancers’, the bonus deduction that relates to the qualifying 2022 expenditure will be included in the business’ 2023 income tax return, together with any bonus the business qualifies for during that year. 2024 bonus deductions will be claimed in the business’ 2024 income tax return.

For ‘early balancers’ (January – December), the expenditure from 29 March 2022 to 31 December 2022 will be part of the business’ 2023 income tax return, and this, together with any expenditure to 31 December 2023, will be included in the company’s 2024 income tax return. The 20% additional bonus on qualifying expenditure between 1 January 2024 and 30 June 2024 will be claimed in the ‘early balancers’ 2025 income tax return.

Next Steps

Considering the concession has effectively been in place for the past 15 months, and has only 12 months to run, a business owners next steps may be:

1. Determine whether your business qualifies as an ‘eligible small business’;
2. From the business financial records, identify employee training costs incurred since 29 March 2022;
3. Confirm whether any registered training providers have been engaged to undertake the employee training identified from the review of financial records – this could be via an initial on-line search, and then with formal written confirmation from the provider;
4. Where third party/intermediary trainers have been engaged to facilitate a registered training provider supplying training to employees of an eligible small business, additional information will need to be obtained regarding any on-costs, commission and additional charges levied by the third party/intermediary, to determine the amount of net expenditure that will qualify for the boost;
5. Collate the 2022 and 2023 information now to enable completion of the business’ 2023 or 2024 (early balancer) income tax return;
6. Plan your employee training for the next 12 months to maximise the opportunity to claim this additional income tax deduction.

23 June 2023