Key Takeaways for SME’s from the Australian 2021 Federal Budget

Posted on 19/5/2021

Tax Advisory

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Overview:

After a year of economic upheaval, the Government recently revealed its much-anticipated Federal Budget for 2021, headlined by a range of new spending measures, business incentives and an extension of tax cuts for low and middle income earners.

As Australia continues its economic recovery from COVID-19, fuelled by a range of Government stimulus measures, it was not surprising that this year’s Budget was light-on with respect to revenue initiatives.

It is also worth remembering that last year’s Budget was delayed until October 2020, meaning that just eight months separated the Government’s prior revenue commitments. As a result, the 2021 Budget focussed more heavily on spending and helping business get back on track.

As we discussed in the 2021 Federal Budget SMSF article, one of the Budget’s headline acts was a raft of changes to superannuation, while the Government also announced the extension of the following three key stimulus initiatives designed to fuel the nation’s economic recovery.

The Full Expensing of Depreciating Assets (FEDA) measure

This measure was commonly known as the “instant asset write-off” in prior iterations and allows businesses to immediately deduct the full cost of depreciating assets. The FEDA deadline to acquire, use and install depreciating assets has been extended from 30 June 2022 to 30 June 2023, providing an additional year of relief. For more information, you can take a look at the article we wrote on Top Tips for $150k Instant Asset Write-off and the fact sheet, which cover the eligibility criteria for attaining the FEDA.

The loss carry-back measure

First announced in last year’s Federal Budget, which we summarised here, the loss carry-back scheme for eligible businesses has now been extended into the 2023 income year. This means that businesses can now generate a refund on tax previously paid in the 2019-2022 income years against a taxable loss from the 2020, 2021, 2022 or 2023 income years.

The Low and Middle Income Tax Offset (LMITO)

First appearing in the 2019-20 financial year, the LMITO provides a maximum tax offset benefit of $1,080 for taxpayers with a taxable income between $48,000 and $90,000. The LMITO was scheduled to end on 30 June 2021 but has been extended for the 2021-22 income year. This marks the second extension of the scheme, after it was retained as part of the October Budget. More information about eligibility criteria for attaining the LMITO can be found here.

From 1 July 2023, the ATO intends to create a compliance regime for not-for-profits that claim income tax exemption but are not registered charities. The compliance regime will require not-for-profits with an active ABN to submit online annual self-review forms to support their self-assessed eligibility for income tax exemption.

Employee Share Schemes

The Government announced the repeal of the deferred taxing point for deferred ESS interests in cases where the relevant employee ceases their employment with the employer from which the ESS interest arose. As a result, the deferred taxing point will be 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 there is no restriction on share disposal; or
the maximum period of deferral of 15 years.

Individual Australian Tax Residency

The Government has announced an intended simplification of the rules surrounding when an individual is considered an Australian tax resident. In short, the four existing tests will be abandoned in favour of a simple 183-day test.

That is, an individual will be deemed an Australian resident for tax purposes if they are physically within Australian for 183 days in any income year. Secondary tests, based on a number of factors, will also need to be considered, including an individual’s economic ties, family, citizenship and accommodation arrangements. It is hoped that the new 183-day test will simplify the process as it is expected many more individuals will be considered as Australian tax residents.

Intangible Assets

Intangible Assets that are acquired post 1 July 2023 will no longer have to adopt the statutory determined ‘effective life’ for depreciation purposes. Such assets include patents, registered designs, copyrights and in-house software.

This initiative will allow taxpayers to better align the economic benefit of the intangible asset with the tax benefits (deductions), potentially bringing forward depreciation deductions with shorter effective lives for their assets. This initiative is to commence after the FEDA measure ceases on 1 July 2023.

Digital Games Tax Offset

The Government has announced a 30% refundable tax offset for eligible Australian businesses that spend a minimum of $500,000 on qualifying Australian games expenditure from 1 July 2022. The definition of qualifying expenditure to support the development of digital games has not been determined or released.

The offset will be claimable in the year when the qualifying expenditure ceases. The maximum offset a developer will be able to claim in each year is $20M.

Self Education Expenses

The $250 non-deductible threshold for self-education expenditure is set to be abolished.

Currently, the first $250 of self-education expenditure – whether deductible or not deductible – is not claimable. This threshold creates red tape and is set to be abolished for simplicity purposes. The change will take effect in the income year following the legislation receiving royal assent.

Brewers & Distillers Excise Rebate

Currently, small brewers and distillers are entitled to a 60% annual rebate/refund of the excise they incur up to a limit of $100,000.

The Government has announced that, from 1 July 2022, the rebate/refund is to be increased to 100% of the excise incurred by small brewers and distillers up to a limit of $350,000.

This change will effectively bring the rebate/refund scheme in line with the Wine Equalisation Tax producer’s rebate.

Patent Box

The Government has announced a 17.5% concessional tax rate for corporates that generate passive income streams from medical and biotechnology patents that are applied for post the Budget announcement. The initiative is designed to encourage research and development and innovation in Australia’s medical and biotechnology industry.

The Government is also considering whether to the extend the concessional tax rate to the clean energy sector.

Not for Profits

From 1 July 2023, the ATO intends to create a compliance regime for not-for-profits that claim income tax exemption but are not registered charities.

The compliance regime will require not-for-profits with an active ABN to submit online annual self-review forms to support their self-assessed eligibility for income tax exemption.