An encouraging Budget for the mid-tier sector

This has been an encouraging Budget for the mid-tier sector.

We are glad to see the extension of the “patent box” preferential tax regime, first proposed for the medical and biotechnology technology sector, into low emissions technologies – this will be a significant boost for encouraging further innovation into this sector, which is so important for Australia’s long-term future.

Australia has the potential to create a comparative advantage in clean energy generation and distribution, and it is important that the intellectual property we develop also continues to be owned here.

The announcements on employee share schemes are very good news and will make it much easier for many more companies to issue shares to their broader workforce. There are currently onerous compliance requirements for unlisted companies when granting share scheme interests, and it is welcome they are being eased. These proposed changes, coupled with the ESS start-up tax concessions, make Australia much more competitive in the start-up space.

It was pleasing to see a skills and training 120 percent tax deduction for small businesses to boost their spending on external training, provided to their workforce. This is an important $550m boost for smaller firms trying to upskill their employees in this era of a shortage of talent.

There is also a $1bn technology investment boost to support digital technology expenditure by small businesses. They will be able to deduct 120 percent of the costs incurred on spending on business expenses and depreciating assets that support digital adoption.

All of this builds on the measures announced by the Treasurer last week to improve business cash flow by more dynamic management of PAYG tax instalments, and to bring more digitalisation to a range of business tax compliance processes.

The only disappointment in the Budget was the absence of any extension of the Instant Asset Write-Off, past June 2023. In our pre-Budget survey*, many small to medium sized businesses said this was a valuable scheme to boost investment which they would have liked to be retained for the longer-term.

They also indicated support for structural tax reform. While it was not to be expected in a pre-election budget, it would nonetheless have been good to have seen some indication of a move away from the current over-reliance of the Australian tax system on direct taxation.

From the perspective of larger private groups, family businesses and family trusts, and high net worth individuals, one point to note from the Budget is the extra $650m the government is devoting to extending its tax avoidance taskforce for another two years to 2025. Already the tax compliance COVID holiday was long over and we have seen a strong ramp up of ATO activity recently.

In our pre-budget survey, many respondents were concerned at the prospect of a tax audit. They should be even more focused now on getting properly-documented tax risk governance frameworks in place, as the ATO requirements demand, and reviewing their position on known ATO focus areas.”

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