A Budget supporting economic growth, which small and medium-sized enterprises will welcome.
This is a Budget squarely aimed at supporting growth in the economy, which small and medium-sized enterprises will welcome. There are a range of measures to encourage business investment and innovation.
The government has chosen to focus on growth to pay back debts rather than tax rises or spending cuts – and this is exactly what KPMG Enterprise’s pre-budget survey of our clients found they wanted.
There are two main stimulus measures, which have been extended for another 12 months, which is quite a surprise but a very pleasant one. First the temporary full expensing for depreciable assets – or instant asset Write-off scheme, sometimes known as the ‘tradie tax relief’, but also available to large businesses turning over up to $5 billion. This is a big incentive for businesses to invest in equipment and technology. More than 99 percent of businesses, employing more than 11 million workers, will be allowed to deduct the full cost of eligible capital assets until June 30, 2023, which is great news, and we are seeing a lot of interest in this.
The Loss Carry-Back Tax Offset which allow businesses with domestic turnovers capped at $5 billion to write off COVID-19-induced losses against previous profits, will also be extended to include the 2022-23 income year. Its slightly too early yet to see the effect of this but it will be positive. Taken together these two tax measures worth a combined $20.7 billion by 2024-25, and Treasury estimates will create as many as 60,000 jobs by the end of 2022-23.
There are other welcome measures to increase Australia’s potential for innovation. Taxpayers will be able to self-assess the tax effective useful life of eligible intangible depreciating assets, such as in-house software, patents, registered designs, and copyrights for purchases after 1 July 2023. This will help businesses match the costs with the period in which they will benefit, and hence will make innovation more likely. However, I expect we will see some disagreements between businesses and the ATO in terms of write off rates.
In terms of specific industries, a new ‘Patent Box’ tax regime will enhance Australia’s attractiveness for investment and innovation in the medical and biotechnology industries, with a new concessional corporate tax rate of 17 percent applying to royalty/licensing income derived from Australian owned and developed medical and biotechnology patents. The Government will also consider whether the measure could support Australia’s renewable energy sector. It is encouraging to see the government going down this road, where other countries currently lead the way – this marks an important step toward keeping commercialisation of Australian innovations in this country.
The Budget confirms the government’s commitment to the R&D Tax Incentive, but falls short of introducing quarterly credits or a new software development tax incentive as recommended by the Senate. A new specialised 30 percent refundable tax offset for digital games development will be welcomed, although the $500,000 threshold on qualifying expenditure will limit its application. Despite this, changes to allow self-assessment of the depreciation of intangibles, including IP and in-house software, will help reduce the effective cost of software development and thus should help the IT industry as a whole.
I was also very pleased to see important changes to employee shares schemes which businesses have been calling for over many years. This will mean that when an employee leaves a company, this is no longer automatically the point where tax kicks in. This will provide more flexibility for employers and will better align with global practice. The tech sector in particular will welcome this.
On superannuation the government has provided further opportunity for Australians to boost their superannuation savings. These incentives include repealing the work test for salary sacrificed and non-concessional contributions for those aged 67 to 74. The eligibility age for accessing the downsizer superannuation contribution will reduce from age 65 to 60.
In relation to self-managed superannuation funds and small APRA-regulated funds, the Government has provided a useful residency relaxation, which will allow members to continue to make contributions to the fund whilst temporarily overseas. More generally on residency there have been a welcome and overdue updating of the rules to provide greater clarity which will encourage business leaders from overseas to come here, which can only be a good thing for Australia’s future.
Overall, this was a very positive Budget for Australia’s small to medium-sized business sector.