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Treasurer Josh Frydenberg handed down the 2021-2022 budget on Tuesday evening, here’s a breakdown of what it means for SMEs.
On Tuesday, 11 May, Treasurer Josh Frydenberg handed down one of the most anticipated budgets in Australia’s history.
The Treasurer revealed Australia’s deficit will reach $161 billion this year, before falling to $57 billion in 2024‑25.
“With more Australians back at work, this year’s deficit is $52.7 billion lower than was expected just over six months ago in last year’s budget," Mr Frydenberg said.
Net debt is expected to increase to $617.5 billion or 30.0 per cent of GDP this year and peak at $980.6 billion or 40.9 per cent of GDP in June 2025.
"This is low by international standards. As a share of the economy, net debt is around half of that in the U.K. and U.S. and less than a third of that in Japan,” Mr Frydenberg assured.
"We are better placed than nearly any other country to meet the economic challenges that lie ahead. Consumer sentiment is at its highest in 11 years. Business conditions reached record highs and more Australians are in work than ever before.
"Our plan is working. Australia’s economic engine is roaring back to life."
The budget includes several new, extended and enhanced measures to support small businesses, including:
- $129.8 million to encourage entrepreneurship through the New Enterprise Incentive Scheme (NEIS) and Entrepreneurship Facilitators Program;
- $1.2 billion investment in the digital economy;
- $10 billion guarantee of reinsurance pool to cover cyclone and flood damage across northern Australia;
- $506 million extension of federal government’s JobTrainer program;
- $10 million over four years on small business deregulation agenda;
- $11 million over three years for national recognition of occupation licences;
- Tax system reform for small business;
- Business incentive expansion;
- $4.3 million to establish the Mandatory Franchise Disclosure Registry; and
- $2.6 million to improve access and awareness of Commonwealth procurement opportunities.
Business incentive expansion
Temporary full expensing
The government will extend the 2020-21 budget measure titled JobMaker Plan — temporary full expensing to support investment and jobs for 12 months until 30 June 2023 to further support business investment and the creation of more jobs.
Temporary full expensing will be extended to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses. From 1 July 2023, normal depreciation arrangements will apply.
This measure is estimated to decrease receipts by $17.9 billion over the forward estimates period and $3.4 billion over the medium term.
Loss carry-back
The government will further support Australia’s economic recovery and business investment by extending the temporary loss carry-back to support cash flow. The extension will allow eligible companies to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return.
Companies with aggregated turnover of less than $5 billion are eligible for temporary loss carry-back. The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry-back does not generate a franking account deficit. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
This measure is estimated to decrease receipts by $2.8 billion over the forward estimates period, with a net cost of $1.9 billion over the medium term.
Tax cuts
Low- and middle-income earners no longer face a tax rise following the announced extension of the low- and middle-income tax offset.
Under the extension, the LMITO — a one-off tax offset worth $1,080 to those earning from $48,000 to $90,000 — will be temporarily retained for the entirety of 2021-22 financial year, costing the budget around $7.8 billion.
By extending the LMITO, the Treasurer has put to rest allegations that the government was preparing to pull forward the next stage of its tax plan – stage three.
Namely, while stage three tax cuts aren’t supposed to commence until 1 July 2024, pundits did speculate that the government could in fact bring them forward to unburden business.
The stage three tax cuts are the largest and most controversial reform to the current system, with all Australian workers earning between $45,000 and $200,000 set to receive the same flat 30 per cent tax rate.
Broadening AAT powers
As revealed earlier this month, Mr Frydenberg declared the Administrative Appeal Tribunal (AAT) now has the ability to pause of modify ATO debt recovery actions while a small business is in a dispute in a move the government hopes will make things "easier, faster and cheaper" for SMEs.
"This will provide an avenue for small businesses to ensure they are not required to start paying a disputed debt until the matter has been determined by the AAT," Mr Frydenberg reiterated.
Technology booster
In line with its plans to make Australia a digital economy in the next decade, the government will invest $1.2 billion in its Digital Economy Strategy for three key reasons.
"Establishing a new national network of Artificial Intelligence Centres to drive business adoption of these new technologies," the Treasurer said.
"[We will be] expanding our cyber security innovation fund to train the next generation of cyber security experts and undertaking a digital skills cadetship trial which combines workplace and vocational training."
Further to the above, the government is encouraging "innovation and investment" in Australian medical and biotech technologies by introducing a patent box.
"...This measure will complement the government’s $2 billion investment in the Research and Development Tax Incentive (R&DTI) which was announced in the 2020‑21 budget. The government has asked the Board of Taxation to review the administrative framework of the R&DTI before the end of 2021," the budget papers noted.
Increasing AusBiz proposition
As the Treasurer noted, "Australia is an attractive place to do business", with "our way of life, our safe, clean cities and our proximity to Asia" desirable to foreigners.
In a commitment to attract more business to Australia and create more Australian jobs, Mr Frydenberg flagged that the government has introduced a new Global Talent visa and Temporary Activity visa and "will modernise the framework for individual tax residency, to encourage highly skilled individuals to relocate to Australia".
Further, Mr Frydenberg said, "The government’s Deregulation Agenda continues to support Australia’s economic recovery, helping unlock business investment and create jobs.
"A further $134.6 million in this Budget will make it easier for businesses to employ people and reduce the regulatory burden for businesses interacting with government, saving on average $430 million in annual compliance costs."