Australian Budget 2022: Tax Benefit For Builders

Builders in Australia that use digital technology are eligible to claim 120% of the amount invested for the next 12 months up to a limit of $100,000.

Builders that utilise technologies such as project management software or digital templates and calculators contained in the Association of Professional Builders (APB) Systems Portal are eligible to claim 120% of the amount invested, up to a limit of $100,000.

Josh Frydenberg says, “[The Technology Investment Boost] will help companies to embrace the digital revolution.”

The residential construction industry has already seen a strong trend over the past 12 months with more and more building companies utilising project management software such as Buildertrend and Buildxact to manage their operations.

The State of Residential Construction Industry (SORCI) Annual Report 2022 highlighted that over 65% of residential home building companies are now using dedicated project management software, up from 34% in 2021.

The same report also highlighted that builders had a much greater understanding of their key performance indicators (KPIs) and the financial benchmarks for the industry from using digital templates and calculators provided by online systems providers such as APB.

As a result, those builders will now be rewarded for investing in their businesses and improving the building experience for their clients by receiving a generous government incentive that allows them to offset 120% of their investment in technology against their taxable income.

The Technology Investment Boost allows the 3.6 million Australian businesses with an annual turnover of less than $50 million to claim the bonus 20% deduction for the cost of business expenses and depreciating assets, such as portable payment devices, cybersecurity systems and subscriptions to cloud-based services. 

An annual cap of $100,000 will apply to eligible technology expenditure, with the initiative set to last until 30 June 2023.

Treasurer, Josh Frydenberg expressed hope during his budget speech that the [Technology Investment Boost] scheme would encourage small businesses, “that are embracing the digital revolution” by rewarding those that invest in new technologies.

“From tonight, every hundred dollars these small businesses spend on digital technologies like cloud computing, e-invoicing, cybersecurity and web design will see them get a $120 tax deduction,” Frydenberg said.

“Small and family businesses are at the heart of our economy and local communities.”

“Lower taxes for small businesses is part of our plan for a stronger future.”

While this cashback opportunity will not even come close to offsetting the crippling increases in the cost of construction materials that have been experienced by builders over the past 18 months, or even the cost of delays caused by the supply chain crisis and COVID-19, it does provide a bit of support to the professional builders in the industry.

APB Member Tye Alroe from Alroe Constructions on the Gold Coast commented, “While this will not benefit larger companies like Alroe Constructions due to the revenue cap, it will give smaller building companies the incentive to implement the systems that have enabled us to grow to a $60 million business in a few short years and it will reward other small building companies who are already systemising their businesses.”

Cherie Woolcock from DFK Accountants noted, “The government understands that technology is our future and they have foreseen that so many small businesses have a systems and skills gap in this area.”

How do you claim the technology investment boost?

The Australian Tax Office (ATO) has stated they will provide further details on eligible expenses once the law has passed. However, they have released the following information which outlines the process for claiming the technology investment boost.

For eligible expenditure incurred between 7:30 pm AEDT, 29 March 2022 until 30 June 2022:

• claim the expenditure as usual in your 2021–22 tax return, and
• claim the additional 20% bonus deduction for this period in your 2022–23 tax return.

For eligible expenditure incurred from 1 July 2022 until 30 June 2023:

• you can deduct the entire 120% in your 2022–23 tax return.

The current meaning of digital in the budget documents is currently defined as the following.

Depreciating assets that support their digital adoption, such as:

• portable payment devices
• cyber security systems; or
• subscriptions to cloud-based services.

These have been left purposefully broad, and the ATO will provide a more specific selection of expenses (i.e. what is eligible under the Small Business Technology Investment Boost, but more importantly, what is ineligible) in the near future when the bill achieves Royal Assent and becomes law.

If your building company is located in Australia and has annual sales below $50 million, then make sure you speak to your accountant about the Technology Investment Boost in order to maximise this window of opportunity.

Because if you plan to systemise your building company, then there will never be a better time than today to get started.