We have summarised the key points from the 2021-2022 budget, that we believe will have the most impact on our clients.

Please keep in mind that all budget measures are proposals and will require the passage of legislation to become effective.

Summary points for Businesses

Extension of the Temporary full expensing of depreciating assets to 30 June 2023
Extension of the losses carried back to 30 June 2023
Introduction of the Patent Box for income derived from Australian medical and biotech patents
Updates to the employee share scheme deferred taxing point
Introduction of the Digital Games Tax Offset
Brewers & Distillers - Excise Refund Scheme cap increased to $350,000 from $100,000
Corporate tax residency rules
Self-assess the effective life of intangibles
Small business entities increased rights to pause the collection of disputed debts.

2021 Federal Budget - Business Summary

The measures announced in last night's Federal Budget are intended to allow business to invest, grow and create new jobs.

Here are the key summaries of the announcements:

Temporary full expensing of depreciating assets

The temporary full expensing has been extended to 30 June 2023.

Applies to eligible businesses with aggregated annual turnover or total income of up to $5 billion
Immediate deduction of the cost of eligible depreciating assets
Assets must be acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.

Temporary loss carry-back

The Temporary loss carry-back will also be extended to the 30 June 2023. This allows companies to obtain a refund of tax paid in previous income years when they incurred a loss in later income years.

Applies to companies with an aggregated annual turnover of up to $5 billion
Tax losses incurred during the 2020, 2021, 2022 and 2023 financial years to offset tax paid in 2019 or later years
The losses carried back must not generate a franking account deficit
The losses carried back cannot be more than earlier year profits
The tax refund will be available to companies when they lodge their 2021, 2022 and 2023 tax returns

Patent box

To encourage investment in the Australian medical and biotech technologies the government has introduced a patent box.

Applies from 1 July 2022
Income derived from Australian medical and biotech patents will be taxed at a concessional tax rate of 17%
Only applies to granted patents that were applied for after the budget announcement

The government will also investigate applying the same method of patent box to the clean energy sector.

Employee share scheme

To support Australian companies to attract and retain employees the deferred taxing point of cessation of employment will be removed. After the removal of the cessation of employment taxing point, 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 Government is also making regulatory improvements to the ESS regime, reducing red tape, by:

removing disclosure requirements, and exempting the offer from licensing, anti-hawking and advertising prohibitions for ESS, where employers do not charge or lend to the employees to whom they offer ESS
increasing the value of shares that can be issued to an employee with simplified disclosure requirements, and exemptions from licensing, anti-hawking and advertising requirements, from $5,000 to $30,000 per employee per year (leaving unchanged the absence of such a value cap for listed companies), where employers do charge or lend for issuing employees shares in an unlisted company

Applies from 1 July following royal assent.

Digital games tax offset

The digital games tax offset (DGTO) applies to the digital games development industry in Australia.

From 1 July 2022, the DGTO will provide eligible game developers with a 30 per cent refundable tax offset for qualifying Australian games expenditure
The DGTO will be available in the year when the qualifying expenditure has ceased on a game
The maximum DGTO a developer will be able to claim in each year is $20 million
The minimum of $500,000 qualifying expenditure has been spent on the game
The game must not have gambling elements

Brewers and distillers - Excise refund scheme

From 1 July 2021, all eligible brewers and distillers will receive full remission (up from 60 per cent) of any excise they pay on the alcohol they produce up to a cap of $350,000 each financial year (increased from $100,000).

Self-assess the effective life of intangibles

Currently, the effective life of intangible assets are prescribed by the income tax act. Unlike tangible assets taxpayers do not have the ability to self-assess the effective life of intangible.

Taxpayers can self-assess the effective life of certain depreciating intangible assets for tax purposes to better align the tax depreciation deductions with the economic benefits provided by the asset.
Applies to patents, registered designs, copyrights, in-house software, licenses and telecommunications site access rights.
Will apply to eligible assets acquired following the completion of temporary full expensing

Corporate tax residency rules

In the 2020-21 Budget, the Government announced amendments to clarify the corporate residency test to address uncertainty for foreign incorporated entities. The amendments were to treat companies incorporate offshore as an Australian tax resident if they have a significant economic connection to Australia. The tests will be satisfied when both criteria are meet;

The company’s core commercial activities are undertaken in Australia
Its central management and control is in Australia

In the 2021-22 Budget, the Government announced it will consult on broadening this amendment to trusts and corporate limited partnerships. The Government will seek industry’s views as part of the consultation on the original corporate residency amendment.

Small business entities increase rights to pause the collection of disputed debts

The Government will make it simpler, faster and cheaper for small businesses to pause or modify Australian Taxation Office (ATO) debt recovery actions in relation to cases under review by the Administrative Appeal Tribunal (AAT) by broadening the AAT’s powers to pause actions until the underlying dispute is resolved.

Small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year will be able to apply to the Small Business Taxation Division of the AAT to have ATO debt recovery actions paused until their underlying case is decided by the AAT. Such action includes recovery of the underlying debt, application of garnishee notices, and/or related penalties and interest.

Learn more

Want to learn more about the other announcements from the 2021 budget? We have broken the full budget down into 6 main categories for usability.

Source:

https://budget.gov.au/2021-22/content/factsheets/download/factsheet_tax.pdf

https://budget.gov.au/2021-22/content/bp2/download/bp2_2021-22.pdf

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