There are winners and losers every year in every Budget address, and the 2021-22 Budget is no exception. This year’s announcements contain two key themes: recovery and innovation. The Treasurer has announced several measures that aim to push Australia’s small businesses into a new age of technology and development.

Read our Federal Budget Update

Economic engine roaring back into life

In the Treasurer’s 2021-22 Federal Budget address, the Hon Josh Frydenberg MP spoke about Australia’s economic engine roaring back into life. While the COVID 19 recession will see Australia’s deficit reach $161 billion this year the optimistic Treasurer says this will fall to $57b in 2024-25.

Clearly, the Government is investing heavily in the economy with a range of measures designed to assist business bolster employment. Investment in Infrastructure, Health, Childcare, Education and Women’s Safety and Essential Services will encourage the continued return to the workforce.

Businesses – the backbone of the economy

With 8 out of 10 jobs in the private sector, this budget has provided several incentives to businesses to grow and drive the Australian economy forward.

An extension to the temporary full expensing measures will see over 99% of businesses (businesses with a turnover < $5B) eligible to write off the full value of any eligible asset they purchase through until 30 June 2023. The class of eligible assets includes depreciating assets that are new assets, secondhand assets (where your business turnover is < $50M) provided they are used or installed ready for use prior to the new cut-off date.

Additionally, an extension to the loss carry-back measures that were announced in the 2020-21 Budget will see companies eligible to carry-back losses from the 2022-23 income year (an extra year) to offset prior year profits. This measure is expected to work alongside temporary full expensing to assist with a company’s cash flow.

Innovation – launching businesses into a new age

The Government has announced several measures centered on assisting and rewarding businesses that are willing to develop and implement the latest technological innovations into their day-to-day operations.

The introduction of Patent Box will see income derived in respect of Australian medical and biotech patents taxed at a concessional rate of 17% from the 2022-23 income year. This may be extended to the clean energy sector. This could see such companies save up to 13% in income tax. The concessional income tax rate applies to the proportion of the research and development conducted in Australia (as opposed to overseas) and applies to patents granted from the Budget date.

Taxpayers will be able to self-assess the effective life of certain depreciable intangible assets including, patents, registered designs, in-house software, licenses, and telecommunications site access rights. This may increase depreciation deductions for businesses after 1 July 2023.

As part of the Government’s $1.2m billion Digital Economy Strategy, $45 million over five years in grants will be contributed to small businesses and community projects in an effort to develop artificial intelligence (AI) based solutions and build AI capabilities in regional areas. Furthermore, digital games developers may be entitled to a 30% refundable tax offset from 1 July 2022. Specific details will be provided after stakeholder consultation.

Individuals – what’s in it for me?

With a looming election date this Budget was sure to provide something for everyone.

The low and middle income tax offset (LMITO or Lamington offset) has been extended for another year (through to 2021-22) which will see low and middle income earners receive up to $1,080 for individuals or $2,160 for couples.

Individuals who seek to upskill will no longer be required to reduce their self-education expenses as this budget removes the $250 reduction.

While there are no other changes to personal income tax rates, we have been reminded of the legislated changes coming in the 2024-25 income year which will see some 95% of taxpayers facing a marginal tax rate of 30% or less.

Superannuation – a boost to your retirement

The $450 per month minimum income threshold, where employers are not required to pay the superannuation guarantee to employees, has been removed. From 1 July 2022, all eligible employees, regardless of their income level, will be entitled to receive this guaranteed superannuation.

Employee Share Schemes

Employees under employee share schemes (ESS) will no longer be taxed on their deferred ESS interests when they cease employment. The taxing point for deferred ESS interests will now be the earliest of the point in time when there is no forfeiture risk or disposal restrictions on the shares provided, or 15 years from the date of receiving the interest. This may offer the benefits of upfront taxation to some employees.

Residency – am I an Australian according to the taxman?

The Budget has noted the complex task Australian’s have when it comes to determining if they need to pay taxes in Australia and has proposed the simplification to the coined “bright-line” test making residency unambiguous.

Under the simplified test, an individual is an Australian Tax resident in a given income year if they are physically present in Australia for 183 days or more during the relevant income year.

We’re ready to help. Contact our team on +61 3 9820 6400 to discuss how this Budget will work for you.