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2021 Budget - Business & Employers

Temporary full expensing extension


Date of effect Assets acquired from 7:30pm AEDT on6 October 2020 and first used or

installed ready for use by 30 June 2023


Businesses with an aggregated turnover of less than $5 billion will be able to continue to fully expense the cost of new depreciable assets and the cost of improvements to existing eligible assets in the first year of use. Introduced in the 2020-21 Budget, this measure will enable an asset’s cost to continue to be fully deductible upfront rather than being claimed over the asset’s life, regardless of the cost of the asset. The extension means that the rules can apply to assets that are first used or installed ready for use by 30 June 2023.


Certain expenditure is excluded from this measure, such as improvements to land or buildings that are not treated as plant or as separate depreciating assets in their own right. Expenditure on these improvements would still normally be claimed at 2.5% or 4% per year.


The car limit will continue to place a cap on the deductions that can be claimed for luxury cars.


From 1 July 2023, normal depreciation arrangements will apply and the instant asset write-off threshold for small businesses with turnover of less than $10 million will revert back to$1,000.


Second-hand assets


For businesses with an aggregated turnover under $50 million, full expensing also applies to second-hand assets.


Small business pooling


Small business entities (with aggregated annual turnover of less than $10 million) using the simplified depreciation rules can deduct the full balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they voluntarily leave the system will presumably continue to be suspended.


Opt-out rules


Taxpayers can choose not to apply the temporary full expensing rules to specific assets, although this choice is not currently available to small business entities that choose to apply the simplified depreciation rules for the relevant income year.


Temporary loss-carry back extension


Date of effect Losses from the 2019-20, 2020-21, 2021-22 or 2022-23 income years


Companies with an aggregated turnover of less than $5 billion will be able to carry back losses from the 2019-20, 2020-21, 2021-22 and 2022-23 income years to offset previously taxed profits in the 2018-19,

2019-20, 2020-21and 2021-22 income years.


Under this measure tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company’s franking account balance.


The tax refund will be available on election by eligible businesses when they lodge their 2020-21, 2021-22 and 2022-23 tax returns.


Before the measure was introduced in the 2020-21 Budget, companies were required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses can still carry losses forward as normal.


This measure will interact with the Government’s announcement to extend full expensing of investments in depreciating assets for another year. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies.



Residency tests rewrite


Date of effect The first income year after the date of Royal Assent of the enabling

legislation.


Determining whether an individual is a resident of Australia for tax purposes can be complex. The current residency tests for tax purposes can create uncertainty and are often subject to legal action.


The Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a simple ‘bright line’ test - a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.


The modernisation of the residency framework is based on the Board of Taxation’s 2019 report Reforming individual tax residency rules - a model for modernisation.


Employee share scheme simplification


Date of effect ESS interests issued from the first income year after Royal Assent of the

enabling legislation


Employee share schemes provide an opportunity for employers to offer employees a stake in the growth of the company by issuing interests such as shares, rights (including options)or other financial products to their employees, usually at a discount.


The Government has moved to simplify employee share schemes and make them more attractive by removing the cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS). Currently, when an employee receives shares or options that are subject to deferred taxation the taxing point is triggered when they cease employment with the company, even if they could still lose the shares or options in future or have not yet exercised the options they have received.


This will mean that under a tax-deferred ESS, where certain criteria are met, employees may continue to defer the taxing point even if they are no longer employed by the company. In broad terms, following this change the deferred taxing point will be the earliest of:


  • 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 shares and no restriction on disposal

  • the maximum period of deferral of 15 years.


Regulatory changes will also be made to reduce red tape where employers do not charge or lend to the employees to whom they offer ESS. Where employers do charge or lend, streamlining requirements will apply for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year.


Fact sheet - Tax incentives to support the recovery



$450 per month threshold for super guarantee eligibility removed


Date of effect The first financial year after Royal Assent of the enabling legislation

Expected to be 1 July 2022


Currently, employees need to earn $450 per month to be eligible to be paid the superannuation guarantee. This threshold will be removed so all employees will be paid super guarantee regardless of their income earned.


The Retirement Income Review estimated that around 300,000 individuals would receive additional superannuation guarantee payments each month once the threshold is removed.

Medical and biotech ‘patent box’ tax regime


Date of effect 1 July 2022


Income derived from Australian medical and biotechnology patents will be taxed at a concessional effective corporate tax rate of 17% from 1 July 2022 under a new $206m ‘patent box’ tax regime.


Only granted patents, which were applied for after the Budget announcement, will be eligible and development will need to be domestic. That is, the patent box rewards companies to keep their IP within Australia. The preferential tax rate applies to income due to the patent and not from manufacturing, branding or other attributes.


The patent box concept is new to Australia but exists in twenty or so other countries including the UK and France. The Government will follow the OECD’s guidelines on patent boxes to ensure the patent box meets internationally accepted standards, and will consult with the industry on the design.


If effective, this same concept may also be applied to the clean energy sector.


Fact sheet - Tax incentives to support the recovery



Tax & investment incentives for the digital economy


Previously announced


As part of its Digital Economy Strategy package, the Government has committed to new and expanded funding to invest in the growth of digital industries and the adoption of digital technologies by small business.


Investment and tax incentives


The Government has committed to a series of tax incentives to support digital technologies:


Digital games tax offset

A 30% refundable tax offset for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure. The Digital Games Tax Offset will be available from 1 July 2022 to Australian resident companies or foreign resident companies with a permanent establishment in Australia. Industry consultation will commence in mid 2021 to establish the eligibility criteria and definition of qualifying expenditure.


Self-assessment of the effective life of certain intangible assets

The income tax laws will be amended to allow taxpayers to self-assess the effective life of certain intangible assets, rather than being required to use the effective life currently prescribed by statute. The measure applies to assets acquired from 1 July 2023 (after the temporary full expensing regime has concluded) including patents, registered designs, copyrights and in-house software for tax purposes. Taxpayers will be able to bring deductions forward if they self-assess the assets as having a shorter effective life to the statutory life.


Review of venture capital tax incentives

The effectiveness of the existing range of tax incentives designed to attract foreign investment and encourage venture capitalists to invest in early-stage Australian companies will be reviewed to ensure they are producing the intended results. This is code for the Government doesn’t think the money invested is achieving a genuine result and changes are likely to be recommended.


Australia’s digital economy – investment incentives fact sheet

Media release - A modern digital economy to secure Australia's future


Emerging aviation technologies


The Government has committed $35.7m to support emerging aviation technologies, the bulk of which is committed to the Emerging Aviation Technology Partnerships (EATP) program. Partnering with industry, the program is focused on:

  • growing manufacturing jobs in electric aviation

  • connecting regional communities

  • digital farming

  • boosting regional supply chains

  • improving health outcomes for remote Indigenous communities.

and is expected to include electric engines, drones and electric vertical take-off and landing aircraft.


Applications for EATP partners will be sought from local and international industry through a competitive application process in late 2021.


Artificial intelligence development


A package of measures to oversee and develop Australia’s use and integration of artificial intelligence (AI) including:


National AI centre

A new national AI centre to create the foundation for Australia’s AI and digital ecosystem within the CSIRO’s Data61. The centre will support projects that lift AI capability, provide a “front door” or SMEs looking for talent, and provide a central coordination for strategically aligned AI projects. Four Digital Capability Centres will be appointed through a competitive process focussing on specific applications of AI, such as robotics or AI assisted manufacturing. These Centres will provide SMEs with connections to AI equipment, tools and research, access to advice and training to help SMEs confidently adopt AI technologies, and links with the required AI expertise to identify business needs and connect them to leading researchers.


AI grant funding

Two grant funding programs (one national and one specifically for regional initiatives) for business to pilot AI projects that address key national challenges. Grantees will retain the intellectual property of their solution.


Media release- A modern digital economy to secure Australia's future

Artificial intelligence

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