Budget Update – Businesses

Business are big winners in this year’s budget

The Government has paid attention to business calls to keep the tax breaks and extend the temporary measures implemented last year when Covid-19 hit our economy last year.

The announcements include:

• Temporary full expensing extension: This measure allows small to immediately write-off the cost of assets purchased from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023. A small business is one with annual aggregated turnover under $5 billion (before it was under $10 million) From July 1, 2023, normal depreciation rates will apply again.
• Loss carry-back extended by one year: Allowing eligible companies (with aggregated turnover of less than $5 billion) to use tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year only when they lodge their 2022-23 tax return. However, even though companies will have that tax refunds available, they will be limited by requiring that the amount carried back is not more than the earlier taxed profits and 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. The purpose of this measure is to help increase cash flow for businesses in future years and support companies that were profitable and paying tax but find themselves in a loss position after COVID-19 pandemic began.
• Digital economy strategy: The Digital Games Tax Offset will be available from 1 July 2022 to Australian resident companies or foreign resident companies with a permanent establishment in Australia. This purpose of this measure is providing a 30% Digital Games Tax Offset as part of its $1.2bn Digital Economy Strategy. Businesses need to spend a minimum of $500,000 on qualifying Australian games expenditure to be eligible.
• Intangible assets depreciation: Allowing taxpayers from 1 July 2023 to self-assess the effective life of certain intangible assets (i.e. patents, registered designs, copyrights and in-house software) rather than being required to use the currently prescribed effective life.
• Research and Development: The Government will invest an additional $2 billion through the Research and Development Tax Incentive (R&DTI). For small claimants (turnover less than $20 million), the Government will increase the refundable R&D tax offset to 18.5 percentage points above the claimant’s company tax rate, and there will be no $4 million cap on annual cash refunds. The cap on eligible R&D expenditure will increase from $100 million to $150 million per annum. These changes apply from 1 July 2021 and will support more than 11,400 companies that claim the R&DTI
• No rate cuts for companies: Whilst there are significant tax cuts for individuals in this Federal Budget, the current dual rate corporate tax system will remain. Only those companies that have aggregated turnover of up to $50 million potentially eligible for a tax rate other than 30 per cent.

We remind our clients that the current legislated tax rates that apply to companies that qualify as a “base rate entity” are as shown below: