The federal budget for Aussie businesses

A technology investment boost will be introduced to encourage small business investment in digital technologies.

Small businesses (aggregated turnover less than $50 million) will be able to claim an additional 20 percent of the cost incurred on up to $100,000 eligible expenditure (per income year) incurred from 7.30pm (AEDT) on 29 March 2022 until 30 June 2023.

Eligible expenditure will include costs incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year.

The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be claimed in tax returns in the year the expense is incurred.

The short timing in relation to this measure may encourage small businesses to accelerate new tech investment before the end of 30 June 2023 which also aligns with the cut off date for the temporary full expensing measure. Typically such capital expenditures can have a long lead time and a deduction will generally only arise where the asset is actually installed and in use.

A skills and training boost will be introduced to support small businesses to train and upskill their employees.

Small businesses (aggregated turnover less than $50 million) will be able to claim an additional 20 percent of the cost incurred on eligible expenditure incurred from 7.30pm (AEDT) on 29 March 2022 until 30 June 2024.

Eligible expenditure will include costs incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.

Ineligible expenditure will include in-house or on-the-job training and expenditure on external training courses for persons other than employees.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year.

The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024 will be claimed in tax returns in the year the expense is incurred.

This measure may have the effect of changing which courses employers will fund. Training providers will need to closely review their programs to ensure they are eligible programs under the scheme.

The Government has extended the measure which enables payments from certain state and territory COVID-19 business support programs to be made non-assessable non-exempt for income tax purposes until 30 June 2022. This measure was originally announced on 13 September 2020.

The state government grants which have been made non-assessable non-exempt are:

• New South Wales Accommodation Support Grant
• New South Wales Commercial Landlord Hardship Grant
• New South Wales Performing Arts Relaunch Package
• New South Wales Festival Relaunch Package
• New South Wales 2022 Small Business Support Program
• Queensland 2021 COVID-19 Business Support Grant
• South Australia COVID-19 Tourism and Hospitality Support Grant
• South Australia COVID-19 Business Hardship Grant.

Where businesses have received these grants you will need to pay close attention to the tax treatment adopted in the income tax return to ensure it is correctly showing as non-assessable.

The Government has announced that the cost of a COVID-19 test to attend a workplace will be tax deductible for individuals from 1 July 2022.

In making this cost tax deductible, the Government will also ensure that where a business incurs the expense in providing the COVID-19 tests to employees, the expense will be exempt from FBT.

Legislation is to be introduced such that regular tax instalments will be calculated based on the previous year plus two (2) percent rather than the current legislated 10 percent GDP uplift factor for tax instalments.

The lower uplift rate will provide cash flow support to eligible small to medium enterprises eligible to use the relevant instalment methods in respect of instalments for the 2022-23 income year.

This change applies to small businesses, including sole traders and other individuals with investment income.

Businesses need to be aware that it is just allowing them to keep potential tax payments as cashflow for longer. They will need to forecast their tax cashflows carefully to ensure they keep sufficient amounts aside to fund future liabilities.

The Government will look to assist companies improve their cashflow by improving the alignment between PAYG instalment liabilities and profitability. This will be done by enabling companies to choose to have their PAYG instalments calculated based on current business performance extracted from accounting software, with some tax adjustments.

The Government plan to consult with the affected stakeholders, including tax practitioners and digital service providers to finalise the policy.

It is anticipated that this will be ready to commence on 1 January 2024, subject to advice from the software providers about their capacity to deliver the integration required.

From 1 January 2024, businesses will have the option to report Taxable Payments Reporting System data (via accounting software) on the same lodgement cycle as their activity statements which start on or after that date.

This measure is intended to increase the accuracy and timeliness of reporting while lowering compliance costs for taxpayers.

Starting on 1 July 2024 the Government will digitalise trust and beneficiary income reporting and processing. This is aimed to increase pre-filling and automating the ATO assurance processes.

In recent years the trust income reporting processes have not been automated to the same extent as individual or company tax returns. This has resulted in longer processing times and limited pre-filling opportunities. This measure is aimed at reducing the compliance burden on taxpayers, reduce processing times and enhance ATO procedures.

The Government will allow proceeds from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates generated from on-farm activities to be treated as primary production income for the purposes of Farm Management Deposits (FMD) scheme and tax averaging from 1 July 2022.

The Government will also change the taxing point of ACCUs and biodiversity certificates issued under the Agriculture Biodiversity Stewardship Market Scheme for eligible primary producers to when they are sold from 1 July 2022. Eligible producers are those who are currently eligible for the FMD scheme and tax averaging.

This is a change from the current arrangement where the proceeds from selling are treated as non-primary production income and generally ineligible for concessional tax treatment under either the FMD scheme or tax averaging.

Currently ACCU holders are taxed based on the changes in value of their ACCU each year, which can result in tax liabilities prior to sale.

No new measures announced for the larger end of town but Tax Office review and audit activity for larger businesses will continue.

The Tax Office has been provided additional funding to support the continued operation of the Tax Avoidance Taskforce.

Additional Government funding of over $650 million will be provided to the Tax Office to extend the operation of its Tax Avoidance Taskforce for an additional two years up to 30 June 2025.

The role of the Taskforce is to monitor tax compliance activities at the larger end of town. Such activities have included the Top 1000 Public Groups Performance Program and next 5000 Private Groups Tax Performance Program.

The Government has seen additional revenue collections exceeding $12 billion over a five-year period as a result of the Taskforce review activities since its establishment in July 2016. An additional $2.1 billion in additional revenue is expected by the Government.

With ongoing Tax Office scrutiny, it is expected that many larger businesses including multinationals operating in Australia will now review or reassess their current tax governance protocols and procedures.

Commencing 1 July 2023, the Patent Box Tax Incentive announced in the 2021 budget specifically for the Biotech sector will be expanded to support technology-focused innovations in both the Australian agricultural and CleanTech sectors. The latter is designed to drive the Government’s technology-focused approach to achieve the Government’s target of net zero emissions by 2050.

Eligible corporate income from patents relating to agricultural innovations, Plant Breeders Rights (PBRs) and patents relating to low emissions technology will be subject to an effective income tax rate of 17 percent for patents granted or issued after 29 March 2022 with respect to income years starting on or after 1 July 2023. Eligible income will be taxed at the concessional tax rate to the extent that the research and development of the innovation takes place in Australia.

The patent box will offer a competitive tax rate for profits generated from eligible Australian owned and developed patents, supporting the commercialisation of innovation in Australia.

Importantly, only granted patents, which were applied for after the Budget announcement, will be eligible for support through Patent Box.

The implementation of the Patent Box should increase the number of patent applications lodged in Australia which is currently low by international standards. However, given the time it takes (two to four years) to secure a granted patent from application any tangible benefits from the program are unlikely to be realised for several years.

Nevertheless, the Patent Box has the potential for Australia to further enhance its already strong competitive advantage in the AgTech sector and, with regards to CleanTech support the Government’s target to achieve net zero emissions by 2050.