Blog Post 5
How the 2021-22 Federal Budget impacts your small business
23 June 2021

It’s been 4-weeks since the Federal Government announced its 2021-22 financial year budget, giving us some time to reflect on the initiatives that will impact small businesses. In May 2020, 12 months ago, the first instalment of JobKeeper had just been paid. JobKeeper, a wage subsidy paid by the Federal Government to businesses significantly impacted by COVID-19, would go on to be the largest single fiscal initiative in Australia’s history.

Although we had just emerged from the first wave of COVID-19 infections better than some of our international peers, the economic outlook in May last year was decidedly bleak. Reputable commentators — Treasury included — warned of an unprecedented economic recession, with unemployment potentially reaching 15 per cent.

Fast-forward to today, and in the words of Treasurer Josh Frydenberg, delivering his third budget, “Australia is coming back”.

Initial predictions were for a modest budget, but with unemployment figures improving, a consumer willingness to spend post-lockdown and a rosier outlook, the 2021-22 Budget contains significant new spending.

While new spending initiatives focus on a transition from broad-based support for the economy to a more targeted approach, we’ve provided a summary of the key announcements that might impact your small to medium business.

TLDR: The quick summary (<1 min read time)

For small to medium businesses

  • The tax rate for small and medium companies has been further reduced to 25% from 1 July 2021 (a continued drop from 30% in 2014/15).
  • A 12-month extension to the “temporary full expensing” of CAPEX and temporary loss carry-back provisions has been granted.
  • Small craft brewers and distillers will receive up to $250,000 in tax breaks.
  • There are provisions to reduce taxes on R&D and a tax offset for digital game development.
  • There is $1.2bn in spending to support the tourism and aviation sectors. Measures include more than 800,000 half price airfares.
  • There is $300m for support of the creative and cultural sector
  • Student visa holders can work more hours. In an effort to address the shortage of workers in the tourism and hospitality sectors, student visa holders are now able to work additional hours.
  • The JobTrainer subsidy, created last year to help boost youth employment, has been extended
  • Small businesses can now apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (AAT) to pause or modify tax debt recovery actions taken by the Australian Taxation Office (ATO)
  • $1.2bn investment in the digital economy
  • The government has confirmed it will provide further funding in regional Australia, including $250 million for the Building Better Regions Fund.

For individuals and owners

  • An extra $1.7bn has been allocated to child care. As a result, costs will fall for families with two or more children in child care, and the annual cap on the subsidy will be removed.
  • The low and middle-income tax offset (LMITO), due to expire on 30 June 2021, has been extended for another year.
  • The government already allows older Australians to make a post-tax downsizer contribution to super when they sell their family home. From 1 July 2022, the minimum age will be lowered from 65 to 60. This policy is designed to encourage downsizing and free up larger homes for families
  • The Budget scraps the $450 per month superannuation threshold allowing super contributions to be paid on amounts less than this.
  • Student visa holders can work more hours. The previous cap — limiting student visa holders to working 40 hours a fortnight while studying — has been lifted for these hard-hit industries.
  • On 1 July of this year, superannuation will increase from 9.5 per cent to 10 per cent.

Some lesser-known highlights

  • Superannuation changes and continuations will help women maximise their retirement savings, and there was a clear focus on keeping women in the workforce by boosting childcare. In addition, attracting global talent to Australia with changes to tax rules will help capitalise on the enviable position we have found ourselves in globally.
  • There is a $1.1bn package of initiatives to support the victims of domestic violence and funding for legal support for women.
  • The government has set aside $16.6m for programs that address women’s health.
  • A surprise announcement in this budget was the Patent Box Regime which is set to boost innovation – particularly in medical and biotechnology.
  • Acknowledging that the virus is a continuing threat to lives and livelihoods, this budget is again framed to prioritise jobs and investment.
  • On 1 July of this year, superannuation will increase from 9.5 per cent to 10 per cent. As an employer, this will undoubtedly mean more paperwork — and perhaps a meeting with your staff to explain where the changes to their payslip have come from.
  • Student visa holders can work more hours. In an effort to address the shortage of workers in the tourism and hospitality sectors, student visa holders are now able to work additional hours. The previous cap — limiting student visa holders to working 40 hours a fortnight while they are studying — has been lifted for these hard-hit industries.

A more in-depth look at the Budget

Despite the forecast that COVID-19 related debts will leave the Budget in deficit until at least 2028, the stark reality is that a growth agenda is needed to further support business, boost investment and create jobs. That said, Australia has faired much better than most, with more people at work than ever before and unemployment on course to settle below 5 per cent for just the second time in almost 50 years.

Business Tax Incentives

The tax rate for small and medium companies has been further reduced, from 26% this financial year to 25% from 1 July 2021 (a continued drop from 30% in 2014/15). More information on tax rates for base rate entities under the threshold can be found here.

Furthermore, a one-year extension to the “temporary full expensing” measure introduced in last year’s Federal Budget has been announced to further support business investment and to create more jobs. These measures, initially announced as part of the previous budget, provide eligible businesses with an immediate deduction for the full cost of depreciating assets. For further details on temporary full expenses, read this.

The Budget also includes tax breaks for distillers, which could mean up to $250,000 in savings every year. Brewers and distillers are currently only able to claim 60 per cent of paid excise, up to $100,000 a year. This limit has now been lifted to $350,000, which means more money stays in business owners’ back pocket to help them fund new projects and expansions — in a very valuable industry with high growth potential.

A smattering of smaller budget measures was also announced, none of which are likely to make many headlines when considered in isolation — yet together, indicate the government has been listening to the concerns of small businesses. These measures include:

  • additional funding for the Australian Small Business and Family Enterprise Ombudsman, with the aim of enabling small businesses to engage in disputes with the tax office outside of the court system; and
  • the removal of the current exclusion on deductions for the first $250 spent on education courses gives more business owners (and their staff) further reason to learn.

The Government will also allow small businesses to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (AAT) to pause or modify tax debt recovery actions taken by the Australian Taxation Office (ATO). Currently, small businesses are only able to pause or modify ATO debt recovery actions through the court system. This measure is a welcome initiative for small business taxpayers as it should allow them to focus their resources on the substantive matter before the AAT rather than costly and complex debt collection issues.

Infrastructure Spending

The Budget also includes a commitment of $10 billion towards infrastructure projects across Australia, with the aim of making roads safer and reducing travel time. The extra funding will support nearly 20,000 jobs.

Employing and Training Staff

Business owners employing student visa holders will have an easier time scheduling staff and can be more confident investing time and resources into training them.

The JobTrainer subsidy, created last year to help boost youth employment, was set to expire in September 2021. However, it’s just been extended. As an employer, you will receive a 50 per cent wage subsidy of up to $28,000 per year for hiring a young person in the scheme.

The Digital Economy

This one’s big — it comes with an overarching vision: "for Australia to be a leading digital economy and society by 2030”. Described as an investment into the settings, infrastructure, and incentives to grow Australia's digital economy, it’s a $1.2 billion dollar package set to benefit the SME and tech communities in a number of ways. Relevant to business owners might be the government’s commitment to:

  • improve internet and mobile connectivity in peri-urban areas;
  • fund increased awareness of business e-invoicing;
  • review venture capital incentives; and
  • extend the Digital Solutions — Australian Small Business Advisory Services program.

Depreciation of intangible assets, such as software, designs and intellectual property, has also been introduced — something the small business and tech communities have been requesting for some time. The government introduced a $20,000 instant-asset write-off scheme back in 2015, allowing for depreciation of assets like work vans and cafe kitchens. (This scheme will continue.) However, intangible assets were left out. The times have obviously changed; now, the government has firmly set its sights on a digital economy.

Regional Australia

The government has confirmed it will provide further funding in regional Australia, including $250 million for the Building Better Regions Fund. The fund offers grants from $20,000 up to $10 million to cover 50 per cent or more of the cost of projects that will provide economic and social benefits for regional and remote areas. Although aimed at assisting council and community organisations, the potential benefits for regional and remote business owners is clear. Where an investment is made, tourists typically follow.

You can find more information at the following sources:

https://budget.gov.au/2021-22/content/bp1/download/bp1_2021-22.pdf

https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/making-child-care-more-affordable-and-boosting

https://www.smartcompany.com.au/budget-2021/frydenberg-budget-last-year-promises/

https://budget.gov.au/2021-22/content/overview.htm

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