13 May 2021

The Federal Budget 2021/22 announced by the Government will see unprecedented spending on Australia’s economic recovery, to build resilience and future essential services. An essential part of the ultimate success of the Government’s strategy will be played in part by the corporate sector.

Unfortunately, the Budget did not contain any announcements on significant tax reform measures, which is an opportunity lost, but we have summarised some of the key business tax concessions and measures contained in this year’s Budget for corporate and large enterprise.

Temporary full expensing of depreciating assets (FEDA) and temporary loss carry-back measures

The FEDA and loss carry-back measures that are currently in place are to be extended by one year. The basic conditions for these remain unchanged, but for the extension of the end dates.

• Temporary full expensing will now be available until 30 June 2023 for businesses with an aggregated turnover of less than $5 billion. The extension will provide businesses with more time to plan larger capital improvement projects.

• Temporary loss carry-back will allow eligible companies to carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year. Companies with an aggregated annual turnover of less than $5 billion are eligible.

Innovation and growth in the digital economy

The Budget provides support for innovation and growth in the digital economy through tax policies, which is a positive step forward to keep value added activities in Australia. The announced initiatives include:

• Patent box tax regime introduction for the exploitation of medical and biotech patents to bring Australia into line with a number of other countries. The regime proposes that income received from eligible patents is taxed at the 17 percent effective concessional corporate tax rate. Normally, corporate income is taxed at 30 percent or 25 percent for SME companies. Only granted patents which were applied for after the Budget announcement will be eligible, and the details of the regime are to be developed through consultation with industry and to determine whether a patent box is also an effective way of supporting the clean energy sector.

• Digital Games Tax Offset proposal to introduce a 30 percent refundable tax offset for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure. Consultation with industry to occur on the specific detail. While the initial focus is on the development of digital games, this measure is intended to stimulate investment in digital technologies in sectors including defence innovation, medical technology, education technology, emergency planning, construction, agricultural technology, modern manufacturing and beyond.

Company tax residency test

The previous year’s Budget announced a proposal to amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’.

This budget includes an announcement that the proposed amendments will extend to trusts and corporate limited partnerships, which is good news. However, we are still waiting for the consultation and the amendments to be finalised, but hopefully we are now getting closer to resolution.

Employee Share Schemes (ESS)

The Government proposes removing the cessation of employment taxing point for tax-deferred Employee Share Schemes that are available for all companies.

At the same time, there will be regulatory improvements made to disclosure requirements under the ESS regime.

Depreciation rules for intangible assets

It is proposed the depreciation rules for intangible assets are amended with effect from 1 July 2013 (i.e. after full expensing of depreciable assets ends) to allow the self-assessment of tax effective lives for assets such as patents, registered designs, copyright and in-house software. These assets currently have effective lives prescribed by statute.

JobTrainer Fund, Apprenticeship Commencements Wage Subsidy and Local Jobs Program

The JobTrainer Fund, Apprenticeship Commencements Wage Subsidy and Local Jobs Program have been expanded to assist with upskilling of employees to support jobs growth. With our international borders to remain largely closed for some time to come, a question is whether there will be enough workers to fill the positions.

Junior Minerals Exploration Incentive (JMEI) extension

The JMEI has been extended for four years from 1 July 2021 through to 30 June 2025. It was previously scheduled to conclude on 30 June 2021.

Excise Refund Scheme expansion

From 1 July 2021, the Excise Refund Scheme has been expanded for eligible brewers and distillers with the Government more than tripling the excise refund cap to $350,000 (previous annual cap was $100,000).

The increased annual cap means the benefit for brewers and distillers will be aligned with the benefit available under the Wine Equalisation Tax (WET) Producer Rebate.

See our full Federal Budget Analysis

Our team of experts has been busy developing insights and analysis that breaks down what the Budget means for Australian businesses and individuals.

Check out the full coverage of the Federal Budget 2021/22, which will continue to develop throughout the week as new insights and video content are published.

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