Focus for Small and Medium Sized businesses
The Federal Budget 2021-22 is fundamentally about spending on economic recovery, to build resilience and future essential services. It is intended to support accelerated economic growth on the back of COVID-19 driven recession we had in 2020. It was not a taxing Budget.
In terms of spending the largest items were the aged care package – at around $17.7 billion over the forward estimates, Infrastructure ($15 billion) and NDIS ($13.2 billion). The Low and Middle-Income tax offset was extended a year ($7.8 billion) and the Investment Asset Write Off also was extended. Other focus areas were childcare, home ownership support and a few changes to superannuation to ensure greater flexibility (as well as support for women).
Some of the key measures
The tax measures in this Budget are mainly a range of stimulus supporting changes with a focus on innovation and growth in the digital economy via a proposed 17% patent box tax regime for the exploitation of medical and biotechnological patents, and in future a more attractive depreciation for intangible assets.
What the budget delivered
Temporary full expensing: The temporary investment tax incentive announced in last year’s budget has been extended for a further 12 months until 30 June 2023. Businesses with a turnover up to $5 billion will be able to deduct the full cost of any eligible asset they purchase for their business, including the cost of improvements to existing assets, until 30 June 2023.
Temporary loss carry-back provision: Companies will now be permitted to carry back tax losses for an extra 12 months from the 2019-20, 2020-21, 2021-22 and now 2022-23 income years to offset previously taxed profits in 2018-19 or later income years.
Extension of loan scheme for small business: Extension of the SME Recovery Loan Scheme which builds on the SME Guarantee scheme. It includes an increased government guarantee of 80 per cent, a higher maximum loan size of $5 million and maximum loan term of 10 years with interest rates capped at around 7.5 per cent. Borrowers may also be offered repayment holidays of up to 24 months on appropriate products. The Scheme is available to SMEs with a turnover of up to $250 million that were recipients of the Job Keeper payment between 4 January 2021 and 28 March 2021 or were affected by the floods in eligible Local Government Areas in March 2021.
Tax cuts: The corporate tax rate for SME’s will drop to 25 per cent from 1 July 2021 from 27.5 per cent.
Digital economy strategy: The Government will provide $1.2 billion over six years from 2021-22 for the Digital Economy Strategy. For SMEs, $53.8 million over four years from 2021-22 to create a National AI Centre and four AI and Digital Capability Centres to drive and support SMEs to adopt and use transformative artificial intelligence technologies; $15.3 million over three years from 2021-22 to promote and accelerate the adoption of e-invoicing by businesses and across all levels of Government; $12.7 million in 2021-22 to expand the Australian Small Business Advisory Service Digital Solutions program reach to up to 17,000 small businesses.
Deregulation: $134.6 million over four years from 2021-22 to progress the Government’s deregulation agenda to make it easier for businesses to employ people and reduce the regulatory burden of interacting with the government.
Employee Share Scheme change: The Government is proposing to remove the cessation of employment taxing point for tax deferred Employee Share Schemes (ESS) which will result tax being deferred until the earliest of the remaining taxing points : in the case of shares, when there is no risk of forfeiture and no restrictions on disposal, in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restrictions on disposal, the maximum period of deferral of 15 years.
Other measures
The Government will allow businesses to self assess the economic life of certain intangible assets (such as patents) for tax depreciation purposes to encourage investment and hiring in innovative activity.
Government is broadening the scope of the Administrative Appeals Tribunal to help SME’s put a pause on any debt recovery action launched by ATO until the underlying dispute is resolved. More funding also made available the Australian Small Business and Family Enterprise Ombudsman to continue helping small businesses resolve disputes.
New efforts to give SMEs a bigger slice of the procurement pie. Government will provide $2.6 million over four years from 2021-22 to support and strengthen participation in Commonwealth procurement. Funding includes: scans of procurements to map any common ‘pain points’ for SMEs; increased communication of procurement opportunities to potential suppliers; targeted Government Procurement Learning Events for SMEs about how to access supply chains and work in major project environments; and a pilot of direct engagement of SMEs by the Department of Industry, Science, Energy and Resources for contracts up to $200,000.
Removal of current exclusion that applies to deductions for the first $250 spent on education courses, which will give more business owners (and their employees) a reason to learn new skills.
Small craft brewers and distillers will benefit from an increase in the cap for claims on the Excise Refund Scheme from $100,000 to $350,000 from 1 July 2021.
Almost $130 million to encourage entrepreneurship through the New Enterprise Incentive Scheme (NEIS) and Entrepreneurship Facilitators Program support people who want to start, run and grow their own business.
Review of venture capital tax concessions – public consultation to be undertaken in 2021.
Focus for Individuals
What the budget delivered
More flexibility around super
Repeal of the work test: Currently, Australians aged 67 – 74 must satisfy a work test (or the work test exemption) to be eligible to make super contributions. The work test will no longer apply when making non-concessional super contributions or salary sacrificed contributions. People in this age group will also be able to access the non-concessional bring forward arrangement, subject to meeting the relevant eligibility criteria.
Downsizer contributions age reduced: The age at which people are eligible to make a downsizer contribution will reduce from 65 to 60. This will allow an after-tax contribution of up to $300,000 per person when they sell their family home.
Removal of minimum income threshold for super guarantee: The Budget removes the current $450 per month minimum income threshold under which employees do not have Superannuation Guarantee (SG) paid by their employer. The Government says that around 300,000 individuals will receive additional SG payments, 63% of whom are women.
Access to lump sums under Pension Loan Scheme (PLS): The PLS is a voluntary, reverse mortgage type loan provided by the Government. It is designed to assist older Australians to boost their retirement income by unlocking equity in their Australian property. Through the PLS, people can receive regular fortnightly payments with the payments accruing as a debt secured against their property.
Legacy retirement product conversions: Consumers will be provided with a temporary option to transition from some legacy retirement products including to more flexible retirement products. Currently, individuals are locked into certain products that restrict access to capital and flexibility of drawdowns.
Home ownership proposals
First Home Super Saver Scheme (FHSSS): The FHSSS, which was introduced in the 2017/18 Budget, allows people to save money for their first home inside their super. The Government will increase the maximum amount of voluntary contributions that can be released under the FHSSS from $30,000 to $50,000.
Family Home Guarantee for single parents: The Government has introduced the Family Home Guarantee as a way of providing a pathway to home ownership to support single parents with dependants. This is regardless of whether they are a first home buyer or a previous owner-occupier.
From 1 July 2021, 10,000 guarantees will be made available over four years to eligible single parents with a deposit of as little as 2%, subject to an individual’s ability to service a loan.
New Home Guarantee: The Government is providing a further 10,000 places under the New Home Guarantee in 2021/22. This is specifically for first home buyers seeking to build a new home or purchase a newly built home with a deposit of as little as 5%.
Personal tax relief
Extension of tax offset: The Low and Middle-Income Tax Offset (LMITO), worth up to $1,080, has been extended for an additional 12 months to cover the 2021/22 financial year. LMITO will be received once individuals lodge their tax return for the 2021/22 financial year.
Sources : The Tax Institute Federal Budget Report 2021-22 and NAB Group Economics