Following from last week’s blog the newly approved Skills and Training Boost gives you a 120% tax deduction for external training courses provided to employees. The aim of this boost is to help small to medium businesses grow their workforce, including taking on less-skilled employees and upskilling them using external training to develop their skills and enhance their productivity.
Sole traders, partners in a partnership, independent contractors and other non-employees do not qualify for the boost as they are not employees. Similarly, associates such as spouses or partners, or trustees of a trust, don’t qualify.
As always, there are a few rules:
- Registration for the training course had to be from 7:30pm (AEST) on 29 March 2022 until 30 June 2024. If an employee is part the way through an eligible training course, enrolments in courses or classes after 29 March 2022 are eligible, not before.
- The training needs to be deductible to your business under ordinary rules. That is, the training is related to how the business earns its income.
- A registered training provider needs to charge your business (either directly or indirectly) for the training (see What organisations can provide training for the boost).
- The training must be for employees of your business and delivered in-person in Australia or online.
- The training provider cannot be your business or an associate of your business.
Training expenditure can include costs incidental to the training, for example, the cost of books or equipment necessary for the training course but only if the training provider charges the business for these costs.
Let’s look at an example.
Animals 4U Pty Ltd is a small entity that operates a veterinary center. The business recently took on a new employee to assist with jobs across the center. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 for the employee to undertake external training in veterinary nursing. The training meets the requirements of a GST-free supply of education. The training is delivered by a registered training provider, registered to deliver veterinary nursing education.
The bonus deduction is calculated as 20% of the amount of expenditure the business could typically deduct. In this case, the full $3,500 is deductible as a business operating expense. Assuming the other eligibility criteria for the boost are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700.
In this example, the bonus deduction available is $700. That does not mean the business receives $700 back from the ATO in cash, it means that the business is able to reduce its taxable income by $700. If the company has a positive amount of taxable income for the year and is subject to a 25% tax rate, then the net impact is a reduction in the company’s tax liability of $175. This also means that the company will generate fewer franking credits, which could mean more top-up tax needs to be paid when the company pays out its profits as dividends to the shareholders.
What organisations can provide training for the boost?
Not all courses provided by training companies will qualify for the boost; only those charged by registered training providers within their registration. Typically, this is vocational training to learn a trade or courses that count towards a qualification rather than professional development.
Qualifying training providers will be registered by:
- Tertiary Education Quality and Standards Agency (search the register – includes States and Territories)
- Australian Skills Quality Authority (ASQA)
- Victorian Registration and Qualifications Authority (search the register)
- Training Accreditation Council of Western Australia
While some training you might want to have engaged might not be delivered by registered training organisations, there is still a lot out there, particularly the short-courses offered by universities, or the flexible courses designed for upskilling rather than as a degree qualification. If you have recently completed performance reviews for staff and training is part of their development pathway, it might be worth exploring.