As always, the Federal Budget can be a lot to digest. This year, there are many opportunities for small and medium-sized business owners, as well as elements that will impact individuals. To help you process all of the information, we’ve broken it down for you.
Changes that may impact small and medium businesses.
Business tax rates cut.
As of 1 July 2021, the business tax rates will drop to 25% for businesses with a turnover of less than $50 million. This cut sees the tax rate decrease from 26%.
This tax rate cut is part of the Government’s plan to deliver more than $16 billion in tax cuts to small and medium businesses by 2023-24.
Extending the instant asset write-off and temporary loss carry-back.
Both the instant asset write-off and the loss-carry will be extended to 30 June 2023.
- Instant asset write-off:
For any assets purchased now (provided your turnover is under $5 billion) until 30 June 2023, you can claim the deduction in the tax year the asset was purchased, rather than claiming a tax deduction over a number of years (known as the effective life of the asset).
It’s important that you talk to both your accountant and finance broker before purchasing an asset. If you have questions about this, please get in touch.
- Loss-carry back:
This goes hand in hand with the instant asset write-off as the purchase of a large asset could potentially put a business into a taxable loss position when the entire amount is claimed in one year. With the extension to the loss carry-back, businesses that run through corporations can apply tax losses incurred during the 2019-20, 2020-21, 2021-22 and now the 2022-23 income years to offset tax paid in 2018-19 or later years.
The extension of both of these is great for businesses who have experienced slow install and acquisition of assets due to global shortages or have been holding off on purchasing until the state of the economy post COVID-19 measures became clear.
Craft brewers and distillers benefit from excise refunds.
A win for small brewers and distillers who will receive up to $250,000 in tax breaks, putting an average of $55,000 back into their pockets. From 1 July 2021, remission will be granted on the full amount of excise paid up to $350,000 per Financial Year. This is a big improvement from the current cap of $100,000 and the Government hopes this will allow small businesses to hire more people, invest in their business to grow, and get new equipment and machinery.
Making it easier for small businesses to pause debt recovery action while in dispute.
In an effort to make it simpler, faster and cheaper for small businesses to pause or modify ATO debt recovery actions, the Government is expanding the powers of the Administrative Appeal Tribunal to pause or modify such actions until the underlying dispute is resolved.
This provides an avenue for small businesses to ensure they’re not required to start paying a disputed debt until the matter has been determined by the AAT.
Extension of the SME Recovery Loan Scheme.
The Government is extending the SME Recovery Loan Scheme which builds on the SME Guarantee Scheme. Included is an increased government guarantee of 80%, a higher maximum loan size of $5 million and a maximum loan term of 10 years with interest rates capped at around 7.5%. Borrowers may also be offered repayment holidays of up to 24 months on appropriate products.
The SME Recovery Loan Scheme is available to SMEs with a turnover of up to $250 million that were recipients of JobKeeper between 4 January 2021 and 28 March 2021 or, were affected by the floods in eligible Local Government Areas in March 2021.
Digital economy strategy.
Small businesses are being supported to adopt digital technologies through a $12.7 million expansion of the Digital Solutions – Australian Small Business Advisory Services. A further $15.3 million will be used to drive business uptake of e-invoicing, including working with EFTPOS, Visa and Mastercard.
There’s never been a better time to change systems to adapt to the digital world. This Budget supports small businesses to update and given it will likely be mandatory in the near future, now is the time to take advantage of the Government assistance. We can help you with the transition to digital technologies, all you need to do is contact us to get started.
Investments in infrastructure to encourage new projects.
The Government is building on its 10-year infrastructure pipeline by committing an additional $15.2 billion to infrastructure projects over the next 10 years. Over the lives of these projects, over 30,000 jobs will be supported. This presents opportunities for businesses who engage in infrastructure, so make sure you are on the lookout for new tenders being released for big projects.
Incentives for businesses to increase employment.
Boosting the Apprenticeship Commencements program.
The Apprenticeship Commencements program has been extended again, with additional funding allocated. Employers will be given an extra $1.5 billion to hire 100,000 apprentices and trainees in the next year. This is on top of the 170,000 that are already supported.
Any apprentice hired up to 31 March 2022 will qualify for the 50% rebate of wages paid for 12 months. The subsidy is capped at $7,000 per quarter per apprentice or trainee.
Extension of JobTrainer.
JobTrainer has been extended to December 2022 and is expected to benefit an additional 163,000 places. The Government’s aim is to support training in digital skills as well as critical industries such as aged care, and will help thousands of job seekers, school leavers and young people.
In addition to JobTrainer, wage subsidies of up to $10,000 will be available to encourage businesses to employ disadvantaged people. This applies to people on job active, Transition to Work and ParentsNext payments, and is administered via employment agencies.
Changes to Employee Share Schemes (ESS).
For those who provide or are part of an Employee Share Scheme (where the taxing point was deferred), the Government has taken steps to remove the ‘cessation of employment’ taxing point.
The Government is supporting Australian companies to attract and retain talent by removing the cessation of employment taxing point for tax-deferred ESS that are available for all companies. By removing this, the measure will result in 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.
The change to the cessation of employment taxing point will apply to ESS interests issued on or after 1 July following Royal Assent. For more information on this, you can view a fact sheet from the Government here.
Boosting innovation in Australia.
Medical and biotech technology patent box.
To encourage the investment in and retention of Australian medical and biotech technologies, the Government is introducing a patent box. The patent box encourages businesses to understand their R&D in Australia and keep patents here. Over 20 countries currently have patent boxes, including the UK and France.
From 1 July 2022, income derived from Australian medical and biotech patents will be taxed at a 17% effective concessional corporate rate. Normally, corporate income is taxed at 30% or 25% for small and medium companies.
There is plenty of industry consultation to be done before the final legislation is known, and the start date for this new tax is 1 July 2022.
Video Game Offset.
To support the growth of Australia’s digital games industry, the Government is cutting the cost of game development in Australia. The aim is to attract investors and/or businesses to set up studios here.
Australian and foreign resident companies who have a permanent establishment in Australia and have a minimum of $500,000 spend will receive a 30% refundable tax offset (capped at $20 million per year) for qualifying Australian games expenditure.
Changes to superannuation.
Super Guarantee Rate Change.
It’s important for employers to take note of this one! From 1 July 2021, the amount of super that business owners need to contribute for employees will increase from 9.5% of salary and wages paid to 10% of salary and wages. This means, for any employment contracts that are written as wages plus super, business owners need to add an extra 0.5% to their overall employee costs for the year.
Don’t forget, this super amount will go up 0.5% every year until it hits 12% in 2026.
Removal of the $450 threshold amount.
Currently, if you earn less than $450 a month as an employee, your employer isn’t required to contribute to super for you. That threshold is being removed, which means everyone over 18 will now be paid super on every dollar they earn. This doesn’t come into effect until 1 July 2022.
This change is to help people with lower incomes, particularly women. However, as a business owner, you will need to make sure your accounting package is set up appropriate ahead of time and be aware of the impacts this will have for you. It’s important to have a chat with your accountant or bookkeeper ahead of 1 July 2022.
Super contributions increase.
From 1 July 2021, you can now contribute $27,500 each year into your super, an increase from the existing cap of $25,000.
The non-concessional contribution cap (which aren’t a tax deduction when you put the money into super) has increased from $100,000 to $110,000 from 1 July 2021. This increase will help those trying to maximise their superannuation deduction in a year. If you want to find out how this could benefit you, please get in touch with our financial planners.
Reforms to the Work Test.
Currently, if you’re aged between 67-74, you need to work 40 hours over 30 consecutive days before you can contribute to super. This is being removed from 1 July 2022, allowing everyone up to the age of 74 to contribute to super. Keep in mind, employer contributions meet this definition. If you want to make a tax-deductible contribution personally, you will still need to pass the 40 hours of work within 30 days.
Extending access to the downsizer contribution.
The Government is expanding the scheme that allows retirees over 65 to make a once-off super contribution up to $300,000 when they downsize and sell their principal place of residence. From 1 July 2022, the minimum age will be lowered from 65 to 60.
Tax-free super limit.
At the moment, you can have $1.6 million in super which can be withdrawn tax-free when you reach 60. You can have more than this in super, but you get taxed on the balance over $1.6 million. This limit is increasing to $1.7 million from 1 July 2021.
First Home Super Saver Scheme.
To help first home buyers become homeowners sooner, the Government is increasing the maximum amount of voluntary contributions that can be released under the First Home Super Saver Scheme from 1 July 2022.
Currently, you can contribute $15,000 per year to help towards this savings goal, with the maximum set at $30,000. As of 1 July 2022, the maximum will be increased to $50,000.
Tax offset for individuals.
Low and middle-income tax offset (LMITO) to continue.
A win for individuals, the personal tax cuts for low and middle-income earners will be extended for another year. The rebate is up to $1,080 for singles and $2,160 for couples.
Help for home buyers.
Family Home Guarantee for single parents.
To help support single parents with dependants, regardless of whether they are a first home buyer or a previous owner-occupier, the Government is introducing the Family Home Guarantee.
From 1 July 2021, 10,000 guarantees will be made available over four years to eligible single parents with dependents to build a new home or purchase an existing home with a deposit of as little as 2%, subject to their ability to service a loan.
Single parents with household income of less than $125K buying their first home, will be able to purchase a new dwelling with 2% deposit, government guaranteeing up to 18% of the loan.
New Home Guarantee.
A further 10,000 places will be provided under the New Home Guarantee. This is specifically for first home buyers seeking to build a new home or purchase a newly built home with a deposit as little as 5%. Get in touch with our finance brokers to get the ball rolling
Extension of the HomeBuilder construction commencement period.
Over 120,000 Australians have applied for the HomeBuilder grant, which is expected to support over $30 billion in residential construction activity.
The Government has extended the six-month construction commencement period to 18 months for all existing applicants. This will smooth out the HomeBuilder construction activity in 2021 and into 2022.
Need help understanding the impact for you?
There’s a lot of information and changes to take in, we get it. Our team of experts are up to date with the changes and ready to help you understand what it means for you and your business.
All you need to do is get in touch to get started.