The ultimate business owners guide to the 2021 Federal bounce back budget

As opposed to a structural reform, this year's federal budget is centred around the idea of facilitating the flow of funds to boost the economy - Hence the affectionate name ‘the bounce back’ budget.

Ultimately, we see no substantial changes to the tax system, as the fundamental changes have already been implemented - Personal income tax rate cuts from the previous budget are continuing to flow as planned.

To save you the pain of reading the detailed budget documents or deciphering news articles, we have summarised the key items relevant to the owners of small and medium businesses.

 

The big ticket items relevant to most business owners

 

1. Temporary full expensing of assets (Sometimes referred to as the instant asset write off)

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. Further to that, businesses with a turnover of less than $50 million are eligible to claim second-hand assets also.

So, what does this mean for your business? You now have even more time to invest in business assets and get an immediate write-off. Eligible assets will include machinery, equipment, tools, IT gear, trucks, etc. Remember, capital works such as building improvements, assets located outside of Australia, or pre-existing commitments are excluded.

A key reminder is to ensure the asset is installed ready for use by 30 June 2023 to gain the full immediate write-off. To ensure a deduction in the 2021 financial year which is coming to an end very soon, the asset needs to be installed ready for use by 30 June 2021.

 

2. 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 2023 financial year. This measure allows entities with tax losses in 2020 to 2023 financial years to carry back those losses and apply them to previously taxed profits from as far back as the 2019 financial year. This means that you can get the tax benefit of a loss back in your pocket sooner instead of waiting to offset it against future profits.

The offset is first available when companies lodge their 2021 tax returns and will offset any tax payable for the 2021 financial year.

The key takeaway here is that this measure is only available for companies (not trusts, partnerships, and sole traders).

 

3. 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.

This measure is designed to simplify & speed up the process and save small businesses money by keeping tax disputes out of court.

 

4. Low and Middle Income Tax Offset (LMITO)

The LMITO has been extended by another year to 30 June 2022. This offset will provide a maximum offset of $1,080 for individuals earning between $48,001 and $90,000.

This means less tax payable by individuals for another year – refer to the table below to see the $ benefit based on different income levels.

 

Taxable Income	Offset
$0-$37,000	$255
$37,001-$48,000	$255 + 7.5 cents for every $ over $37,000 (up to maximum of $1,080)
$48,001-$90,000	$1,080
$90,001-$126,000	$1,080 – 3 cents for every $ over $90,000
$126,001	Nil

 

 

5. Increases in Super Guarantee Rate will 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 talk that this may have been deferred, but it appears this is not the case.

This brings to light the importance of whether your salary packages are inclusive of super or plus super. If salary packages/contracts are inclusive of super, then you need to consider if you will pay additional super or adjust the gross income down accordingly.

Xero and other payroll software will allow for the increased rate of super in time for 1 July 2021.

 

6. Abolition of the minimum $450 earnings threshold for super from 1 July 2022

Last night’s budget saw a surprising announcement - The minimum threshold of $450 per month for super guarantee will be abolished from 1 July 2022.  From a compliance perspective and for low income employees, this is a welcomed announcement. However, it does create additional employee costs to businesses with a high casual rate, where employees are earning less than $450 per month.

Luckily, it's now easier than ever to report and pay super through platforms like Xero and Keypay.

 

7. Planned company tax rate cuts still in place

Company tax rates are already scheduled to reduce to 25% for businesses with a turnover of less than $50m. This is not new, but the budget has confirmed no changes and that this will still apply from 1 July 2021.

 

8. Individual tax cuts still in place

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 the 2025 financial year when the big tax cuts really come into play.

The tax cuts for 2025 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 2025 are noteworthy due to the fact that the government estimates around 95% of taxpayers will pay a marginal tax rate of 30% or less. This is significant from a business structuring perspective - A company tax rate of 25% will result in some great planning opportunities.

 

Other announcements

 

1. Childcare subsidy

The annual cap of $10,560 for households with a combined income of more than $189,390 will be abolished. If you have more than one child in childcare, the rebate will increase to 95% for each child. Families with only one child in care will remain at the 65% rebate.

 

2. Patent box

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 the 2023 financial year.

This is a significant reduction from the corporate tax rate of 30% for large corporations and 25% for small to medium corporations. 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.

 

3. Excise refund cap to be tripled for small brewers and distillers

The Government confirmed in the Budget that the excise refund cap for small brewers and distillers will increase to $350,000 from 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, effectively tripling the excise refund cap for small brewers and distillers from $100,000 per year.

Currently, eligible brewers and distillers are only entitled to a refund of 60% of the excise they pay, up to an annual cap of $100,000.

 

4. 30% digital games tax offset from 1 July 2022

The Government confirmed in the Budget that it will provide a 30% Digital Games Tax Offset from 1 July 2022 as part of its $1.2bn Digital Economy Strategy.

Tax incentives will be provided to stimulate investment in digital technologies, including a 30% Digital Games Tax Offset for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure.

It’s a great initiative for any Australian gaming developers wanting to capitalise on the growing gaming and e-sports landscape.

 

5. 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 and deferring it to a later date.

 

6. Self-assessing effective life for intangibles

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:

• Patents
• Registered designs
• Copyrights
• In-house software
• Licenses; and
• Telecommunications site access rights

This measure will take effect after the temporary full expensing ceases on 30 June 2023 (because up until that date these items would likely be fully deductible).

 

7. JobMaker hiring credit

JobMaker is still here, but it’s not being heavily used. If it suits your business, then still worthwhile taking advantage of it. Employers can claim an amount per week for new employees hired as follows: 16-29 years of age = $200 per week, and 30-35 years of age = $100 per week.

 

Other initiatives

As mentioned in the introduction, this is a big spending budget, so many other initiatives were also announced.

• JobTrainer + Apprenticeship Support
• Funding for domestic violence
• Increased funding for Childcare
• Aged care support
• NDIS support
• Mental health support
• Big infrastructure spends
• Providing continued support to SMEs through the SME Recovery Loan Scheme
• 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

 

Final thoughts

As always, none of this is legislation until it receives Royal Assent.

If you are confused about all the detail and just want to know what the budget means for you or your business, talk to Link Advisors.