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Tax deductions: Making the most of the digital asset tax breaks

One of the key take-outs from this year’s Federal Budget is the potential for small businesses who invest in digital technology to benefit with a handy tax deduction.

In his Budget speech, Treasurer Josh Frydenberg said that for every $100 small businesses spend on digital technologies such as invoicing, cybersecurity and web design, they would g     et a $120 deduction come tax time. Small businesses with an annual turnover of less than $50 million could claim the deduction for any expenses of up to $100,000 between 29 March 2022 and 30 June 2023.

This complements a similar initiative from the Victorian Government as part of its Small Business Digital Adaptation Program, which allows businesses that purchase one of 14 nominated digital tools access to a rebate of $1,200. The product must be purchased from the supplier by 18 July 2022, or before the program’s funds are exhausted, whichever comes first.

Taking advantage of the scheme

Sharon Melamed, Founder and Managing Director of B2B supplier sourcing platform Matchboard, says she plans to take advantage of these deductions to boost digital capability.

“Within the broad definitions outlined, I’d absolutely be looking to take advantage of the incentive,” she says.

Although full details of the scheme are yet to be announced – and could indeed be dependent on the upcoming election – Sharon predicts clear benefits for her business’s cash flow.

“In my calculation, the bottom-line savings after tax will be five per cent. I’ll be putting this straight into additional digital investment. We’ll probably spend an extra $10,000 in the next 12 months.”

Increasing spend

“Our business has around 10 cloud subscriptions to platforms including Mailchimp and Xero. We would probably increase our spend on SEO, as ranking near the top of Google search results has just become an intensely competitive field. We’d also look to make some website enhancements.

“Digital is core to our business, and the Government’s new deductions are encouraging us to invest more than we would have otherwise. I think it’s a great initiative.”

Challenges to solve

It can be hard to balance investment in digital technologies that may reduce operational costs or provide a return over time with the many other regular expenses faced by small businesses. But for Sharon these deductions have come along at an opportune moment, as they align with ongoing business priorities as well.

“Keeping up with ever-changing Google algorithms is the top challenge. As an online business, we can’t afford to drop the ball, as SEO accounts for half our website traffic,” she says.

“The problem is that every year it becomes more competitive and more complex, which means the required investment to stay near the top of Google search results keeps going up and up.”

Return on investment

Despite these challenges, Matchboard expects a marked return on investment in digital technologies.

“We expect a strong productivity impact with the launch of our customer relationship management tool in June,” says Sharon. “Moving away from spreadsheets was long overdue.”

She also credits the team’s new video-conferencing platform as  part of the change that has contributed towards growth for the business.

“Implementing Zoom has been amazing, as it has prompted us to launch an online executive roundtable concept where we match a supplier to a virtual room full of buyers. This has resulted in a triple-digit uplift in revenues from online events.”

So, while few businesses would benefit from investing solely for the sake of the tax break, those that can identify the digital technologies and upskilling that will reap rewards may welcome the extra deduction – as icing on the cake.

If you’re a small business owner, speak with your broker about streamlining your processes with a loan of up to $500K to invest in digital.

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