Federal Budget 2021: 7 key take-outs for small businesses
At a glance
Highlights from Federal Treasurer Josh Frydenberg’s announcements and Budget:
- Extensions on some familiar tax breaks – think temporary full expensing and the loss carry back scheme – are back for another year.
- Increased childcare subsidies could be the boost that small business owners need to focus on getting the businesses back on track post-pandemic – or to start a new business.
- Beer, tech and game developing are a welcome entry into this year’s Budget.
- Heads up – a change to superannuation is need-to-know for some small business owners.
1. The drive for digital accelerates
The Government is making the digital economy one of its top priorities in this year’s Budget and there will be associated benefits for small businesses. The $1.2 billion plan includes Digital Solutions – Australian Small Business Advisory Services (ASBAS). The program was set up in 2018, expanded in 2020 and is set to receive a $12.7 million funding boost, which the Government says will help 17,000 businesses access free or subsidised advice on issues including ecommerce, social media, data security and business software.
A further $15.3 million will support uptake of electronic invoicing which could lead to cost savings, fewer manual handling errors, and a more efficient and secure integration of data for small businesses.
2. A toast to three niche – but growing – industries
The nation’s craft brewers and spirit distillers can look forward to targeted tax cuts set to come their way in July this year. Eligible brewers and distillers will be able to claim a refund on any excise they pay up to an annual cap of $350,000. Previously they were only entitled to a 60% rebate with an annual cap of $100,000. The aim is to motivate the industry to invest in staff, cellar door facilities, improved equipment, and the exploration of export markets. The boost is expected to benefit some 600 brewers and 400 distillers, employing about 15,000 people.
In a first for Australia, this year’s Budget includes tax incentives for local video game developers. From July 2022, the Digital Games Tax Offset gives a 30% refundable offset on local games production. The minimum spending threshold on qualifying expenses is $500,000 which could put the benefit out of reach for some sole operators or smaller developers.
Medtech and biotech entrepreneurs could benefit from the Budget’s $206.4 million ‘patent box’ tax incentive scheme whereby income derived from Australian-owned and -developed medtech and biotech patents will be taxed at a concessional rate of 17%. Developed to drive Australian-based R&D and keep patents local, it’s a lower tax rate than either the company or personal tax rates.
The concession will come into effect from 1 July 2022 and will be available for patents applied for and granted after the Budget announcement.
3. Childcare changes give entrepreneurs and small business owners room to flourish
Childcare subsidies benefit parents, not mothers solely.
But women with children aged under four saw the greatest reduction in hours worked between February and May 2020 according to AFR’s reporting of the Budget papers – and childcare costs can be a significant barrier to women entering and staying in the workforce, including running their own business or business with a partner.
And women head up approximately more than a third of all small businesses.
This Budget commits $1.7 billion to more affordable childcare over the next three years.
The new Childcare Subsidy Scheme will come into effect in July 2022 and will mean that:
- The annual $10,560 cap on households with an income of more than $189,390 will be abolished.
- If you have one child in childcare, the subsidy stays at 65%.
- The subsidy increases to 95% per child for second and subsequent children.
While there is some debate as to whether these changes will have a meaningful impact on affordability for low and middle-income families, it is possible that, come July next year, some female small businesses owners or entrepreneurs might have the opportunity to kickstart their business or spend more time on an existing business with reduced stress around childcare costs.
4. Tax breaks for small businesses get another boost
The loss carry back scheme has been extended for another year after being announced at last year’s Budget. Eligible businesses can obtain a refundable tax offset by choosing to carry back losses to earlier years, resulting in a potential refund, reduced tax liability or reduction of debt owed to the ATO.
This may be particularly significant to small businesses that have taken advantage of the instant asset write-off provision. If, for example, a new piece of equipment was fully deducted and caused the business to go into loss, the business (if eligible) could claim a refund of tax paid in earlier years.
The temporary full expensing measure has also been extended for another year, allowing eligible businesses with a turnover of less than $5 billion to immediately write off the full cost of assets used or installed for use by 30 June 2023. The Treasurer said the measure would benefit more than 99% of businesses, employing some 11 million people.
5. An independent umpire puts the brakes on debt recovery action
Currently, a taxpayer has to pay up even if a tax debt is disputed. And they only get a refund if successful in the courts or the Administrative Appeals Tribunal (AAT).
The new Budget signals an expansion of the AAT’s powers to ‘pause or modify’ debt recovery action by the ATO until underlying disputes are resolved.
This could spell welcome relief for the cash flow of any small business facing action from the ATO.
6. Small business superannuation obligations set to increase
The Treasurer announced in his Budget speech that the $450 monthly minimum income threshold for superannuation will be abolished. This is likely to be good news for the 300,000 employees, 63% women, who would benefit from removing the monthly threshold but may weigh a little heavier on small business owners who employ staff earning less than $450 per month.
Legislation to confirm the change is expected to be introduced by July 2022.
7. Employee equity changes are good for employees – and their employers
A $500 million overhaul is set to make significant changes to employee share schemes and encourage small businesses and startups to offer equity to their staff.
Currently, when employees leave a workplace, they are no longer entitled to tax concessions on shares they own through an employee share scheme. Under the new rules, employees won’t have to pay tax on their shares even after they leave a business.
Employee share schemes can be a valuable way for emerging businesses to attract talent and this tax incentive, in addition to streamlining individual tax residency rules, may make them even more so.
“Australia is coming back,” announced Treasurer Josh Frydenberg to kick off a Budget speech that put “businesses, big and small” doing the leg work on economic recovery.
Australia’s small business owners will no doubt accept the challenge and use the Budget’s many small business-friendly features to make their own post-pandemic comebacks.
For further information and the full details of the Budget, visit the Federal Budget website.
Want to take advantage of the tax benefits from this year’s Budget and invest in your business? See how a Prospa Small Business Loan might be able to help. Apply now.
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