2021 Budget – what this means for business and employers
The 2021 budget delivers plenty of initiatives for our business owners and employers; immediate asset write off retained until 30 June 2023, carry back losses, Employee Share schemes, residency simplified, investment incentives for the digital economy, tax relief for brewers and distillers, those on student visas can work 40 hours if working for agriculture or tourism and further insolvency reforms to name a few. See below for further details …
Temporary full expensing extension
Date of effect: Assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023
Businesses with an aggregated turnover of less than $5 billion will be able to continue to fully expense the cost of new depreciable assets and the cost of improvements to existing eligible assets in the first year of use. Introduced in the 2020-21 Budget, this measure will enable an asset’s cost to continue to be fully deductible up front rather than being claimed over the asset’s life, regardless of the cost of the asset. The extension means that the rules can apply to assets that are first used or installed ready for use by 30 June 2023.
Certain expenditure is excluded from this measure, such as improvements to land or buildings that are not treated as plant or as separate depreciating assets in their own right. Expenditure on these improvements would still normally be claimed at 2.5% or 4% per year.
The car limit will continue to place a cap on the deductions that can be claimed for luxury cars.
From 1 July 2023, normal depreciation arrangements will apply and the instant asset write-off threshold for small businesses with turnover of less than $10 million will revert back to $1,000.
Taxpayers can choose not to apply the temporary full expensing rules to specific assets, although this choice is not currently available to small business entities that choose to apply the simplified depreciation rules for the relevant income year.
Temporary loss-carry back extension
Date of effect: Losses from the 2019-20, 2020-21, 2021-22 or 2022 -23 income years
Companies with an aggregated turnover of less than $5 billion will be able to carry back losses from the 2019-20, 2020-21, 2021-22 and 2022-23 income years to offset previously taxed profits in the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
Under this measure tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company’s franking account balance.
The tax refund will be available on election by eligible businesses when they lodge their 2020-21, 2021-22 and 2022-23 tax returns.
Before the measure was introduced in the 2020-21 Budget, companies were required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses can still carry losses forward as normal.
This measure will interact with the Government’s announcement to extend full expensing of investments in depreciating assets for another year. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies.
Residency tests rewrite
Date of effect: The first income year after the date of Royal Assent of the enabling legislation
Determining whether an individual is a resident of Australia for tax purposes can be complex. The current residency tests for tax purposes can create uncertainty and are often subject to legal action.
The Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a simple ‘bright line’ test - a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.
The modernisation of the residency framework is based on the Board of Taxation’s 2019 report Reforming individual tax residency rules - a model for modernisation.
Employee share scheme simplification
Date of effect: ESS interests issued from the first income year after Royal Assent of the enabling legislation
Employee share schemes provide an opportunity for employers to offer employees a stake in the growth of the company by issuing interests such as shares, rights (including options) or other financial products to their employees, usually at a discount.
The Government has moved to simplify employee share schemes and make them more attractive by removing the cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS). Currently, when an employee receives shares or options that are subject to deferred taxation the taxing point is triggered when they cease employment with the company, even if they could still lose the shares or options in future or have not yet exercised the options they have received.
This will mean that under a tax-deferred ESS, where certain criteria are met, employees may continue to defer the taxing point even if they are no longer employed by the company. In broad terms, following this change the deferred taxing point will be the earliest of:
- 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 shares and no restriction on disposal
- the maximum period of deferral of 15 years.
Regulatory changes will also be made to reduce red tape where employers do not charge or lend to the employees to whom they offer ESS. Where employers do charge or lend, streamlining requirements will apply for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year.
Fact sheet - Tax incentives to support the recovery
$450 per month threshold for super guarantee eligibility removed
Date of effect: The first financial year after Royal Assent of the enabling legislation. Expected to be 1 July 2022
Currently, employees need to earn $450 per month to be eligible to be paid the superannuation guarantee. This threshold will be removed so all employees will be paid super guarantee regardless of their income earned.
The Retirement Income Review estimated that around 300,000 individuals would receive additional superannuation guarantee payments each month once the threshold is removed.
Fact sheet - Tax incentives to support the recovery
Tax & investment incentives for the digital economy
Previously announced as part of its Digital Economy Strategy package, the Government has committed to new and expanded funding to invest in the growth of digital industries and the adoption of digital technologies by small business.
Investment and tax incentives
The Government has committed to a series of tax incentives to support digital technologies:
Digital games tax offset
A 30% refundable tax offset for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure. The Digital Games Tax Offset will be available from 1 July 2022 to Australian resident companies or foreign resident companies with a permanent establishment in Australia. Industry consultation will commence in mid 2021 to establish the eligibility criteria and definition of qualifying expenditure.
Self-assessment of the effective life of certain intangible assets
The income tax laws will be amended to allow taxpayers to self-assess the effective life of certain intangible assets, rather than being required to use the effective life currently prescribed by statute. The measure applies to assets acquired from 1 July 2023 (after the temporary full expensing regime has concluded) including patents, registered designs, copyrights and in-house software for tax purposes. Taxpayers will be able to bring deductions forward if they self-assess the assets as having a shorter effective life to the statutory life.
Review of venture capital tax incentives
The effectiveness of the existing range of tax incentives designed to attract foreign investment and encourage venture capitalists to invest in early-stage Australian companies will be reviewed to ensure they are producing the intended results. This is code for the Government doesn’t think the money invested is achieving a genuine result and changes are likely to be recommended.
Australia’s digital economy – investment incentives fact sheet
Media release - A modern digital economy to secure Australia's future
Artificial intelligence development
A package of measures to oversee and develop Australia’s use and integration of artificial intelligence (AI) including:
National AI Centre
A new national AI centre to create the foundation for Australia’s AI and digital ecosystem within the CSIRO’s Data61. The centre will support projects that lift AI capability, provide a “front door” or SMEs looking for talent, and provide a central coordination for strategically aligned AI projects. Four Digital Capability Centres will be appointed through a competitive process focussing on specific applications of AI, such as robotics or AI assisted manufacturing. These Centres will provide SMEs with connections to AI equipment, tools and research, access to advice and training to help SMEs confidently adopt AI technologies, and links with the required AI expertise to identify business needs and connect them to leading researchers.
AI grant funding
Two grant funding programs (one national and one specifically for regional initiatives) for business to pilot AI projects that address key national challenges. Grantees will retain the intellectual property of their solution.
Expansion of small business digital support services
The Government has committed to:
- A further $12.7m for the Digital Solutions - Australian Small Business Advisory Services Program that provides small businesses with access to digital solutions advisers to work with them to expand their use of digital technology. The Digital Solutions Program will pilot a program for the not-for-profit sector.
- $15.3 m has been dedicated to drive electronic invoicing through the business community by working with payment providers, supply chain pilots, and education campaigns (E-invoicing will be mandatory for Government by July 2022). No direct incentives for adoption.
Investments in new technologies to reduce emissions
Previously announced date of effect: From 2021 - 22
The Government will provide $1.6 billion over ten years from 2021-22 (including $761.9 million over four years from 2021-22) to incentivise private investment in technologies identified in the Government's Technology Investment Roadmap and Low Emissions Technology Statements. Funding includes:
- Creation of a technology co-investment facility that supports the development of regional hydrogen hubs, carbon capture, use and storage technologies, very low cost soil carbon measurement and new agricultural feed technologies, a high-integrity carbon offset scheme in the Indo-Pacific region, and support the implementation of the Technology Investment Roadmap and Low Emissions Technology Statements
- Establish the below baseline crediting mechanism recommended by the King Review and help realise abatement opportunities in large industrial facilities
- Support for Australian businesses and supply chains to reduce their energy costs and improve productivity through the uptake of more energy efficient industrial equipment and business practices
- Early stage seed capital financing function within the Australian Renewable Energy Agency (ARENA).
Media Release - Jobs Boost From New Emissions Reduction Projects
Media Release - Cutting Emissions And Creating Jobs With International Partnerships
These amendments have not yet been made, but the Government has announced that it will also consult on broadening the scope of the amendments to trusts and corporate limited partnerships as part of the consultation process dealing with the company residency rules.
Tax relief for brewers and distillers - annual cap increased to $350k
Previously announced date of effect: 1 July 2021
From 1 July 2021, eligible brewers and distillers will be able to receive a full remission of any excise they pay, up to an annual cap of $350,000. Currently, eligible brewers and distillers are entitled to a refund of 60% of the excise they pay, up to an annual cap of $100,000.
The tax relief will align the benefit available under the Excise Refund Scheme for brewers and distillers with the Wine Equalisation Tax (WET) Producer Rebate.
Media release - Tax relief for small brewers and distillers to support jobs
Tax exemption for storm and flood grants for SMEs and primary producers
Date of effect: Grants relating to storm and flood events between 19 February and 31 March 2021
Qualifying grants made to primary producers and small businesses affected by the storms and floods will be non-assessable non-exempt income for tax purposes.
Qualifying grants are Category D grants provided under the Disaster Recovery Funding Arrangements 2018, where those grants relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021. These include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000.
Student visa holders working in key sectors
Student visa holders will temporarily be able to work more than 40 hours per fortnight in key sectors:
- Tourism and hospitality - student visa holders will be able to work more than 40 hours per fortnight, as long as they are employed in the tourism or hospitality sectors.
- Agricultural sector - From 5 January 2021, work limitation conditions placed on student visa holders were temporarily lifted to allow these visa holders to work more than 40 hours per fortnight if they are employed in the agriculture sector. The Government has removed the requirement for applicants for the Temporary Activity visa (subclass 408) to demonstrate their attempts to depart Australia if they intend to undertake agricultural work. The period in which a temporary visa holder can apply for the Temporary Activity visa has also been extended from 28 days prior to visa expiry to 90 days prior to visa expiry.
Support for tertiary and international education providers
Date of effect: From 2021 - 22
The Government is implementing a series of measures to assist tertiary and international education providers to help mitigate some of the impact of COVID-19. Funding includes:
- $26.1 million over four years from 2021-22 to assist non-university higher education providers to attract more domestic students through offering 5,000 additional short course places in 2021
- $9.4 million in 2021-22 to provide grants of up to $150,000 to eligible higher education and English language providers to support innovative online and offshore education delivery models
- extending existing FEE-HELP loan fee exemption by six months to 31 December 2021
A range of Government fees and regulatory charges have also been either revised or postponed.
Extending supports for the arts sector
Previously announced, the Government will provide $222.9 million over two years from 2020-21 to continue to support the arts sector through the impacts of COVID-19.
- Expansion of the Restart Investment to Sustain and Expand Fund to provide financial support to support events or productions
- Extension of the Temporary Interruption Fund for 2021-22
- A program of support for independent cinemas
Producer Tax Offset rate holds at 40% for 2020-21
The Producer Tax Offset rate will stay at 40% for feature films with a theatrical release. The 2020-21 Budget had intended to reduce the rate to 30%.
Heavy road vehicle charge increase
Date of effect: 1 July 2021
The Heavy Vehicle Road User Charge will increase from 25.8 cents per litre to 26.4 cents per litre from 1 July 2021.
New avenue for small business to ‘pause’ ATO debt recovery
Previously announced date of effect: Date of Royal Assent of the enabling legislation
Small businesses with an aggregated turnover of less than $10 million per year will be able to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery action until their underlying case is decided.
Currently, small business can only pause ATO debt recovery action in the courts. This new avenue will enable a small business to pause ATO debt recovery until their case has been heard by the AAT.
Further insolvency reforms
The Government has announced that it will further streamline insolvency laws:
- Review of trusts - Review how trusts (a common vehicle for SME businesses) are treated under insolvency laws.
- Review future of safe harbour trading provisions – introduced in 2017, the safe harbour trading provisions provided breathing space for distressed businesses to trade out of debt. These rules will be reviewed to determine if they remain fit for purpose.
- Review of schemes of arrangement – introduction of a moratorium on creditor enforcement while schemes are being negotiated.
- Increase in statutory demand threshold – the threshold at which creditors can issue a statutory demand on a company will increase from $2,000 to $4,000.
Media release - Further insolvency reforms to support business dynamism
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