The 2021/2022 Federal Budget and changes for Business Taxpayers
On May 11, Federal Treasurer Josh Frydenberg handed down the 2021/22 Federal Budget. In addition to highlighting a business-led economic recovery from the consequences of the COVID-19 pandemic, he announced many welcome measures to support business taxpayers.
In particular, he outlined the Government focus on stimulating the domestic economy with expanded measures to help small-to-medium businesses invest and grow, remove unintended consequences and reduce compliance costs.
In this blog, we look at five of the main announcements.
- Temporary full expensing extension
In the 2020/21 Federal Budget, the Government announced amendments to allow businesses access to a new temporary full expensing of eligible depreciating assets until 30 June 2022.
This means there is no limit to the cost of an eligible asset that can be fully written off.
As a part of the 2021/22 Budget, they proposed an extension of one year to 30 June 2023.
Now, businesses with an aggregated annual turnover or total income of less than $5 billion are now able to deduct the full cost of new depreciable assets of any value. Additionally, small-to-medium sized businesses can fully deduct second-hand assets purchased and installed during the eligible period.
The new measure allows an asset’s cost to be fully deductible upfront, rather than being claimed over the asset’s life.
The extension applies to assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
All other aspects of temporary full expensing remain unchanged, including the alternative eligibility test based on total income.
- Temporary loss carry-back extension
The temporary loss carry-back measure allows businesses that experiences a net operating loss to apply that loss to a prior year’s tax return.
Companies with an aggregated annual turnover of up to $5 billion in the loss year, can carry-back losses incurred during the 2019-20, 2020-21, 2021-22 income years to offset taxed profits in previous income years.
In the Budget, the Government extended the loss carry-back to 30 June 2023.
So, now when eligible businesses lodge their 2023 tax return, they can also utilise tax losses from the 2023 income year to offset previously taxed profits as far back as the 2019 income year.
The tax refund available is limited by requiring that the amount carried back is not more than the earlier taxed profits. The carry-back cannot generate a franking account deficit either, meaning that the refund is further limited by the company’s franking account balance.
Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
- Digital economy strategy – Self-assessing the effective life of intangible depreciating assets
As part of the Government’s Digital Economy Strategy, the Budget outlined a commitment to provide $1.2 billion over six years from 2022 to support Australia to be a “leading digital economy and society” by 2030.
Under the strategy the Government will allow taxpayers to self-assess for tax purposes the effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in-house software.
The intention is to align the tax treatment of these assets with the treatment of tangible assets and reduce the cost of investment for business.
The new measure will apply to assets acquired from 1 July 2023, after the temporary full expensing regime has concluded.
It should be noted that businesses will still have the option of applying the existing statutory effective life to depreciate these assets.
- Debt recovery for small business.
Currently, small businesses are only able to pause or modify ATO debt recovery actions through the courts, which can be costly and time consuming.
To address this, the Government announced that small businesses (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 Administrative Appeals Tribunal.
The Tribunal will be able to address disputes such as garnishee notices and the recovery of general interest charges or related penalties.
It is expected that applying to the Tribunal instead of the courts will save small businesses thousands in court and legal fees, and as much as 60 days of waiting for a decision.
The new powers for the Tribunal will be available in respect of proceedings commenced on or after the date of Royal Assent of the enabling legislation.
- Tax treatment of qualifying storm and flood grants
The Government will provide income tax exemptions for qualifying Category D grants made to primary producers and small businesses that have been affected by the storms and floods in Australia.
These grants are provided under the Disaster Recovery Funding Arrangements 2018 and relate to the storms and floods in Australia that occurred due to rainfall events between 19 February 2021 and 31 March 2021.
They include small business recovery grants of up to $50,000 and primary producer recovery grants of up to $75,000. The grants will be made non-assessable non-exempt income for tax purposes.
Tax changes can be complicated, but our advice isn’t
We hope you have gained an understanding of the Government’s changes and how they may impact you.
If you have any questions or wish to discuss any of the information in this blog, please do not hesitate to email or call us on 02 9060 3705.