There is a bit of something in this budget for everyone, but it is more about spending than structural reform. We see no material changes to the tax system, but the reality is the real fundamental changes to the tax system have already been implemented with the legislated company and personal income tax rate cuts from recent years. To save you the pain of reading the budget documents or tuning into the political media commentary [sigh], we have summarised for you the main bits relevant to the owners of a small to medium enterprise.
Temporary Full Expensing of assets
This measure was announced in the 2020-2021 budget in October 2020 and has now been extended to 30 June 2023. The temporary full expensing measures allow businesses with an aggregated turnover of up to $5 billion to deduct the full cost of eligible assets.
So, what does this mean for business? You now have more time to invest in assets and get an immediate full write-off of pretty much all eligible new assets [remember capital works such as building improvements, assets located outside of Australia or pre-existing commitments are excluded].
The good news for businesses with turnover of less than $50 million is certain secondhand assets are also eligible for the temporary full expensing.
A key reminder is to ensure the asset is installed ready for use by 30 June 2023 and you need to be carrying on a business to be eligible.
Temporary Loss carry-back
For companies with a turnover of less than $5 billion, the temporary loss carry-back rules will be extended for another 12 months until the 2022-23 financial year. This measure allows entities with tax losses from 2019-2020 to 2022-2023 financial year to carry back those losses and apply to previously taxed profits from as far back as the 2018-2019 financial year.
The offset is first available when companies lodge their 2020-2021 tax returns and will offset any tax payable for the 2020-2021 financial year.
The key takeaway to note here is that this measure is only available for corporate entities, compared to the temporary full expensing of assets – this measure does not apply to businesses who operate through a trust structure.
The government is seeking to encourage patents developed in biotech and medical technologies by companies in Australia to be retained in Australia. They will do this by taxing any income earned from these patents at 17% from 2022-2023.
This is a significant reduction from the corporate tax rate of 30% for large corporates and 25% for small to medium corporates. While this initially only applies to biotech and medical technologies, the government has pledged to consult with the clean energy sector to see if the patent box can have a similar application in that industry.
This concession is only available for patents applied for after the Budget announcement.
Increased ability to pause collection of disputed ATO debts
Small businesses, including individuals, with a turnover of less than $10 million will be able to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (AAT) to pause any debt recovery actions until the dispute is resolved by the AAT.
At present this action can only be decided by the courts, which can be a costly and lengthy process. This measure is designed to simplify & speed up the process and save small businesses money.
It will be interesting to see how this evolves as more information becomes available.
Employee Share Schemes
There are some key changes for employers looking to attract and retain employees for the employee share scheme (ESS) rules. The taxing point will be removed where employees cease their employment for tax deferred ESS interests.
This is a key change as employees who leave their employment but are still eligible to acquire shares are currently taxed upon ceasing employment.
This measure will defer the taxing point until the earliest of the remaining taxing points, being:
- For shares: where there is no risk of forfeiture or restrictions on disposal
- For options: when the employee exercises the options and there is no risk of forfeiture and no restrictions on disposal
- Or 15 years, being the maximum deferral period
This is a useful change, but to be honest, more could have been done in this area.
Self-assessing effective life for intangibles
This announcement forms part of the “digital economy strategy” which is a key economic measure to build on digital technology opportunities.
From 1 July 2023, it is proposed that taxpayers will be able to self-assess the effective life on depreciating intangible assets, giving them a shorter effective life and greater depreciation rates for tax purposes. Eligible intangible assets will include:
- Registered designs
- In-house software
- Licenses; and
- Telecommunications site access rights
This measure will take effect after the temporary full expensing ceases on 30 June 2023.
Individual taxpayers and families didn’t miss out in tonight’s budget. Some key announcements are:
Low and Middle Income Tax Offset (LMITO)
The LMITO has been extended to 30 June 2022, this offset was set to end on 30 June 2021. This offset will provide a maximum offset of $1,080 for individuals earning between $48,001 and $90,000. For individuals with income of $90,001 to $126,000 the offset will phase out at 3 cents for every dollar over $90,000.
|$37,001-$48,000||$255 + 7.5 cents for every $ over $37,000 (up to maximum of $1,080)|
|$90,001-$126,000||$1,080 – 3 cents for every $ over $90,000|
The annual cap of $10,560 for households with a combined income of more than $189,390 will be abolished. Where you have more than one child in childcare, the rebate will increase to 95% for each child, and families with only one child in care will remain at 65% rebate.
Bright line residency test
Based on recommendations contained in the 2019 Board of Tax report Reforming Individual Tax Residency Rules – a model for modernisation, the government has announced a new framework for individual tax residency rules.
The primary “bright line” test will mean individuals who have been present in Australia for 183 days or more in an income tax year, will be an Australian tax resident.
The Tax Institute commentary on this measure is “this follows the Full Federal Court 2019 decision in Harding which highlighted the difficulties taxpayers face in determining their residency status”.
Everything old is new again … here is a summary of some of the measures discussed in the budget but already legislated or confirmed in the budget that take affect from 1 July:
Increases in Super Guarantee Rate will be go ahead from 1 July 2021
The amount of super an employer must pay for employees increases to 10% from 9.5%, from 1 July 2021. There was talked this may be deferred, but it appears to have been confirmed to be going ahead.
This brings to light the importance of whether your salary packages are inclusive of super or plus super.
Last night’s budget saw a surprising announcement that the minimum threshold of $450 per month for super guarantee would be abolished from 1 July 2022. And while from a compliance perspective and for low income employees, this is a welcomed announcement, it does create additional employee costs to businesses with a high casual rate, where employees are earning less than $450 per month.
Company tax rate cuts still in place [already legislated]
Company tax rates are already scheduled to reduce to 25% for businesses with turnover less than $50m. This is not new, but the budget has confirmed no changes and that this will still apply from 1 July 2021.
Individual tax cuts [already legislated anyway]
Most personal tax cuts have already been legislated including some that were backdated to 1 July 2020 [when the government did their mini-budget in October 2020] and some that are yet to come into effect in 2024-25 when the big tax cuts really come into play.
The tax cuts for 2024-25 and onwards have already been legislated but as a reminder, this is what they will be:
|Taxable income||Tax rate on this income|
|$18,200 to $45,000||19%|
|$45,001 to $200,000||30%|
|$200,001 and over||45%|
These tax rate changes in 2024-25 are significant in that the government estimates around 95% of taxpayers will pay a marginal tax rate of 30% or less. This is significant from a structuring perspective when you look at what the company tax rate will be at that point in time [25%].
JobMaker hiring credit [still here but used very little]
Employers can claim an amount per week for new employees hired as follows:
- 16-29 years of age = $200 per week
- 30-35 years of age = $100 per week
- Available from 7 October 2020 to 6 October 2021
- Employee must have previously been on JobSeeker, Youth Allowance or Parenting Payment for at least one of the previous 3 months at the time of hiring
- Need to increase the overall headcount of employees [cannot terminate older employees and replace with younger employees to attract the credit]
- New employees must work at least 20 hours per week
- Employers must be reporting payroll through Single Touch Payroll [STP]
Interestingly there were many other macro-economic initiatives announced in the budget including some very niche incentives and some very broad projects such as:
- JobTrainer + Apprenticeship Support
- Funding for domestic violence
- Increased funding for Childcare
- Aged care support
- Mental health support
- Big infrastructure spends
- Providing continued support to SMEs through the SME Recovery Loan Scheme
- Promoting the growth of the Australian digital games development industry
- Support for regions
- Streamlining visas for highly skilled migrants
- Support for Agri export markets
- Six national manufacturing priorities of resources technology, food and beverage, medical products, recycling and clean energy, space and defence
- Digital transformation initiatives
- Supporting aviation and tourism sectors
- Some easing of ability for older Australians to put money into super
As always, none of this is legislation until it receives Royal Assent.
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