The 2021 Australian Federal Budget has just been announced. Do you know what it means for you, your business and your employees this year? To say last year was a rollercoaster for employers and employees is an understatement. Last year’s budget was one of the most significant of our time and helped provide many Australians with a lifeline who did it tough during the pandemic. With many small and medium-sized businesses around the country feeling the economic impact of Covid-19, the 2020 budget was aimed to help employers and employees get back on their feet in a bid to restart the economy. It was centred around jobs, jobs and more jobs – creating jobs, getting Australians back into study to gain a better job, and incentivising employers to provide a job to those with limited experience. Looking back, almost one million jobs have been added to the economy since the worst of the downturn. This year, the budget is aimed at repairing the Australian economy and driving unemployment rates down below 5%. The focus on the 2021/22 budget is securing Australia’s recovery after Covid-19 by creating jobs, driving business investment and supporting households. We get it. Understanding the Federal Budget is hard. Understanding parliamentary jargon and applying it to your business situation is even harder. But we’re here for you, and we’ve decoded it so you don’t have to. If you’re looking for an easy-to-understand, quick-read version of the Australian Federal Budget 2021, this is it. Ready to learn what the 2021 Australian Federal Budget means for businesses across the country? Let’s get started. Disclaimer: While due care has been taken in preparing this article, no responsibility is accepted by the author for the accuracy or suitability of the information contained. All liability is expressly disclaimed for any loss or damage which may arise from any person relying on, using or acting on any information contained therein. If you are unsure about how this information applies to your specific situation please seek expert advice or contact Employment Innovations.
Overview of the Federal Budget 2021
Decoding the budget is tricky business. Before we dive in, here’s an overview of changes that will affect SMEs as a result of the 2021/22 Australian Federal Budget.
- A goal to attract global talent to the Australian job landscape – this will be achieved by simplifying the process for talent from countries who have a complicated process to work in Australia (ie, the United States), changes to the way employee share schemes are taxed, and changes to tax treatment for foreign investors and financial service providers.
- The temporary full expensing and loss carry back has been extended for an additional year, providing an additional $20.7 billion in tax relief – this allows SMBs who have a turnover of up to $5 billion to offset their losses against previous profits made in or after the 2018/19 financial year and deduct the full cost of depreciating assets. Businesses who fall into this category will also be able to write off the full value of any eligible asset they purchase through their business.
- Foreign students working in the tourism and hospitality industries will now be allowed to work more than 40 hours per fortnight – this will provide relief for these sectors who rely heavily on travellers.
- Tax breaks will be available for innovative companies (medical and biotech) under a new patent box scheme – this will encourage research and development (R&D) to be done locally, as well as keep patents Australian-owned.
- $1.2 billion will be invested in the Digital Economy Strategy -this will encourage Australian employees and companies to make the switch to digital processes in their organisations.
- Small breweries and distilleries will receive tax relief – this will see businesses receive full excise refunds (capped at $350,000).
- Australian superannuation guarantee to increase to 10% for employees – this will better help set up Australians for their future and retirement
- From 1 July 2022, employees earning under $450 per month will now be entitled to superannuation from their employer
A goal to attract global talent
The Federal Government is aiming to attract global talent to Australia via three main avenues;
- Making the process easier to work in Australia
- Implementing changes to employee share owners
- Introducing changes to tax treatment for foreign investors and financial service providers
Making it easier for global talent to work in Australia
Individual tax residency regulations will be significantly simplified to encourage those from countries that have a complicated process to work in Australia, such as the United States. This new ‘bright line’ primary test will deem an eligible person an Australian tax resident if they are physically present in Australia for a minimum of 183 days per year.
Changes to employee share owners
The Federal Government is supporting Australian companies to attract and retain top talent. This allows start-ups who are early on in their journey and cannot afford large salaries to instead offer shares to their employees. They have proposed changes to employee share schemes when an employee exits the organisation. Previously, employees were taxed on the shares they owned in a company they were employed at when they left the company. Additionally, employers were only allowed to issue up to $5,000 worth of shares in an unlisted company per year to their employees. Now, employees won’t be taxed on the shares they own when they leave the company. Additionally, employers are now able to issue up to $30,000 worth of shares in an unlisted company per year to their employees.
Changes to tax treatment for foreign investors and financial service providers
The ATO will create a concierge service to help foreign investors learn about possible tax implications and provide advice on any proposed transactions or relocations to Australia. The Federal Government will also review the tax incentives surrounding venture capital and investment, with the aim “to examine whether current arrangements are creating incentives for additional investment and assisting genuine, early-stage Australian start-ups”.
Temporary full expensing and loss carry back extended
The Federal Government is extending temporary full expensing and loss carry back for an additional year – until 30 June 2023. This means that businesses that have a turnover of up to $5 billion will be able to offset their losses against previous profits made in or after the 2018/19 financial year and deduct the full cost of depreciating assets. This will provide an additional $20.7 billion in tax relief, helping to support business investment and create jobs in Australia.
Businesses with an annual turnover of up to $5 billion will be able to write off the full value of any eligible asset they purchase through their business. This will apply to 99% of Australian businesses and could be applicable to the purchase of a new vehicle, new machinery, office equipment or tools. This announcement is the extension of the temporary full expensing initiative introduced last year allowing businesses with an annual turnover of less than $5 billion to deduct the full cost of depreciating assets. This applies to eligible depreciating assets of any value that have been acquired from 7.30 pm 6 October 2020, if the assets are used or ready for use by 30 June 2023.
Loss carry backs
This extension announcement will allow eligible companies to carry back tax losses from the 2022/23 income year. This will be able to offset the tax profits as far back as the 2018/19 income year. An example: Top Packaging Pty Ltd (Top Packaging), a packaging company, decides in December 2021 to expand its operations. However, the new machinery ordered from overseas will not be available to be installed until August 2022. Top Packaging is relying on being able to fully expense the new machines and claim a tax refund through loss carry-back to help finance the expansion. Without the extension to temporary full expensing and temporary loss carry-back, Top Packaging would not be able to benefit from the incentives and would not be able to expand. Source: Budget.gov.au
An easing of restrictions for foreign students working in hospitality or tourism
With international travel still remaining off the cards for some time, the Federal Government has eased some restrictions for foreign students working in the hospitality and tourism sectors. Both the tourism and hospitality industries rely heavily on the supply of overseas travellers who fill these positions – especially in regional hotspots. Previously, foreign students were only permitted to work up to a maximum of 40 hours per fortnight. Now, foreign students will have the 40 hours per fortnight cap removed, providing some relief for these sectors. Additionally, the Government has introduced a change for temporary visa holders, allowing them to shift to the Covid-19 ‘pandemic event visa’ for a year if they gain employment in the hospitality or tourism sectors.
Tax breaks for innovative companies under a new patent box scheme
The Federal Government has announced $206.4 million in a ‘patent box’ incentive scheme, with the aim to increase investment in medical and biotech innovation. This incentive has been designed to keep R&D activities local and encourage companies to keep patents registered in Australia. This will see changes to the way income derived from Australian-owned medical and biotech patents are taxed. Now, patents in either of those industries that have been developed locally will be taxed at a concessional rate of 17%. This is vastly lower than the typical 30% income tax rate, or 25% for Australian small and medium-sized businesses. This is building upon the JobMaker Hiring Credit announced in last year’s Federal Budget. The patent box incentive scheme will come into effect as of 1 July 2022 and will be available for patents that are granted after 7.30 pm Tuesday 11 May 2021.
Increased funding for the technology sector
Under the 2021/22 Federal Budget, the Government has ambitious plans for Australia to be a leading digital economy and society by 2030. Aware of the rapid digitisation in the working world due to Covid-19, $1.2 billion is set to be invested in the Digital Economy Strategy. The goal is to build digital skills, encourage businesses to invest in digital technologies and overhaul the myGov system – making it easier than ever for all Australians to access services and information whenever they need.
Building digital skills
Over $100 million will be invested in educating and creating a digital economy with the goal to create more jobs, improve business productivity and enhance working life for Australians. The workplace has changed dramatically in the last decade and it’s never been more important for working Australians to keep up.
Encouraging business investment in technology
The Federal Government is aiming to promote the growth of the games development industry by providing games developers a refundable tax offset of 30%. In addition, Australian businesses can now claim depreciation on certain intangible assets like intellectual property (IP) and other software and programs to encourage digitisation in the workplace.
Tax relief for small brewers and distillers
Tax relief is on the way for Australian small brewers and distillers. This will see these businesses receive full excise refunds (capped at $350,000) beginning 1 July, 2021. Previously, the refund was 60% and capped at $100,000. Now, the refund is 100% and capped at $350,000 – almost tripling the cap for small brewers and distillers. Excise duty: A commodity-based tax on alcohol, tobacco, and fuel and petroleum products manufactured or produced in Australia. Excise refund: A refund you can claim for excise duty you’ve paid on goods delivered for domestic consumption in certain situations. Any refund you receive is assessable income for income tax purposes, so you need to include it in your tax return. An example: Sarah operates a small gin distillery in Western Australia. The distillery produces 5,000, 700mL bottles of gin (40 percent alcohol by volume) each financial year, attracting around $120,000 in excise. Prior to 1 July 2021, the gin distillery could only claim 60 percent of the excise they paid up to a cap of $100,000 per financial year resulting in an excise refund of $72,000 of the total $120,000 excise they paid. From 1 July 2021, they will be eligible to claim the full amount of excise they paid ($120,000) — $48,000 more than under the previous arrangements. Source: Budget.gov.au
$450 superannuation threshold removed from 1 July 2022
From July 1 July 2022, employees earning below $450 per month will be entitled to receive the superannuation guarantee from their employer if they satisfy eligibility requirements.
The superannuation guarantee increases to 10%
From 1 July, 2021, the superannuation guarantee will rise to 10%, up from 9.5%.
The wrap up
There’s no denying the last year has been challenging for Australian small businesses. If you’re looking for more information on the 2021/22 Australian Federal Budget, we suggest taking a look at the Budget 2021/22 Fact Sheet here or viewing other documents on budget.gov.au.