Two big-ticket items out of the 2020 Budget have been extended for another 12 months.
Business generating up to $5 billion in revenue can now expense the full cost of assets of any value through to 30 June 2023. This policy was first created in 2012 and is now part of the furniture. Given it is designed to stimulate capital expenditure and incentivise investment in the recovery, it may well be extended for another year in the 2022 Budget.
To recap, limits are noted in Table 1 below.
Carry-back loss provisions are likewise extended to 30 June 2023, allowing loss-making businesses to offset those losses against the previous year profits to secure immediate tax refunds, rather than waiting to apply the losses against profits in future years.
The use of this in FY2023 will be dependent on profit/loss results in the immediate recovery period, but it does allow flexibility for companies to use the write-off and carry-back loss provisions together for longer, as noted in Table 2.
The below table gives the example of a business that makes a loss as a result of asset purchases written off in FY2021.
Bringing the two tax breaks together makes the 12-month extension more meaningful as businesses will have more time and more flexibility to use the provisions. These measures are expected to cost $20.7 billion over the estimate periods but in reality, the long-term cost is more like $3.4 billion as those assets would have been depreciated at a later point in time.
The JobTrainer fund has been extended to the end of 2022. With an additional $500 million in funding (to be matched by the States) it will support an additional 163,000 low-fee and free training places. Of these, the focus is pointedly on aged care and digital skills courses. Eligibility will be expanded to include selected industries that are still affected by COVID-19.
Immigration expectations are at their lowest for some time with population growth expected to be 0.1% in FY2021 and 0.2% in FY2022. With that, the Australian economy is staring down the barrel of a skills shortage. That train might have already left the station but the Coalition is nevertheless trying to bridge the gap by providing an additional $2.7 billion to extend the Boosting Apprenticeship Commencements program. This will support more than 170,000 new apprentices and trainees by subsidising 50% of wages (up to a cap of $28,000 per year) for new apprentices/trainees signed up before the end of March 2022.
In a throwback to the Turnbull years’ focus on innovation, the Coalition has unveiled a ‘patent box’ policy for the medical and biotech sector. Income derived from Australian-developed medical and biotech patents will be taxed at a concessional rate of 17%. Designed to encourage investment in development and the hiring of research professionals, it is a timely policy and one that can help cement Australia as a leader in medical research.
Similarly, intangible assets, which are common balance sheet items for technology start-ups, will now be free of the tax depreciation shackles. From 1 July 2021, businesses will be able to self-assess the economic life of intangible assets such as patents, copyrights and in-house software for tax depreciation purposes, which aligns their treatment with that of tangible assets.
On a smaller but related point, digital game developers will receive a 30% refundable tax offset from July 2022 for video games developed locally.
The SME Recovery Loan program was an important pillar for small and medium enterprise (SME) during the COVID-19 crisis. The Government has extended the program for businesses that have been either:
— Receiving JobKeeper between 4 January 2021 and 28 March 2021, or
— Impacted by the NSW floods in March 2021.
The loans are guaranteed by the Government up to 80% of their value and are only available for businesses with less than $250 million turnover. With interest rates capped at 7.5%, they can be an important source of liquidity for cash-strapped enterprise.
There will be more flexibility for tax-deferred Employee Share Schemes (ESS). In a fairly technical change, the Coalition has removed ‘cessation of employment’ as a taxing point for shares earned under an ESS. The removal of this makes it more flexible for staff to participate in equity schemes designed to attract high-end talent and align remuneration with long-term success.
Example:
Charlotte works at a start-up software developer and agrees to an employment agreement that means 50% of her remuneration is paid through the grant of shares each year under a tax-deferred ESS. The company does this as they do not yet have the cash flow to pay salaries. By January 2021, Charlotte has been granted 100,000 shares in the company that will vest in FY2023 at a value of $100,000. Later in April 2021, Charlotte leaves the business.
Under the old rules, Charlotte leaving the business would be a tax event meaning she would have to include the $100,000 in her FY2021 return and pay tax on the shares. However, the shares don’t vest until FY2023 and cannot be sold to help pay the tax liability.
Under the new rules, Charlotte the tax liability will be incurred in FY2023, when the shares vest. This aligns the timing of the tax liability with when the shares vest and are able to be sold.
Additionally, unlisted businesses that lend to employees will now be able to issue up to $30,000 of shares to an employee each year, up from $5,000 a year. The changes are positive for business and employees, aimed at bringing schemes somewhat in line with international competitors.
Brewers and distillers are now on the same page as winemakers following the alignment of the excise refund scheme with the wine equalisation tax rebate. Eligible brewers and distillers will now receive a full refund of any excise they pay (up from 60%), subject to a cap of $350,000 (an increase from $100,000).
Designed to support small distillers and brewers who have been disproportionately impacted by the pandemic, this measure is expected to cost $225 million over the forward estimates
Other measures worth mentioning for small and medium businesses:
$129.8 million to streamline the New Enterprise Incentive Scheme to make it easier for new business owners to access support schemes such as Centrelink allowances, small business workshops and formal business training.
The Administrative Appeals Tribunal will become an independent intermediary between the ATO and small business for tax disputes, preventing the ATO from pursuing disputed debts until they are resolved.
$8 million to continue the ‘shop local’ campaign to support small and family business.
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