Federal Budget 2021-2022

The Federal Budget 2021-2022 has been designed for a business-led economic recovery from the consequences of the COVID-19 pandemic.

The Federal Budget also reflects the Government’s desire to institute reforms to the administration of the tax laws and their overall simplicity, as well as provide support for innovation. However, any substantive reforms to the overall efficiency and sustainability of the tax base have been left for a future Federal Budget.

Below is a summary of select measures announced in the 2021-2022 Federal Budget relevant to Small and Medium Enterprises (SME) and corporates.

Start dates at a glance

Measures in brief

Temporary full expensing extended

• Temporary full expensing will now be available until 30 June 2023. 
• Temporary full expensing allows eligible businesses with aggregated annual turnover or total income of up to $5 billion to deduct the full cost of eligible depreciable assets. Assets must be acquired from 7:30pm AEDT, 6 October 2020 and first used or installed ready for use by 30 June 2023. 
• The 12-month extension will provide eligible businesses with more time to access the incentive, including projects that require longer planning times and those affected by COVID-19 related supply disruptions.

Temporary loss carry-back extended

• Temporary loss carry-back will also be extended by one year to the end of the 2022 tax year. 
• This 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 aggregated annual turnover of up to $5 billion can apply tax losses incurred during the 2019-20, 2020-21, 2021-22 and now the 2022-23 income years to offset tax paid in 2018-19 or later years. The tax refund will be available to companies when they lodge their 2020-21, 2021-22 and now 2022-23 tax returns.
• This measure is intended to increase cash flow for businesses in future years and support companies that were profitable and paying tax, but find themselves in a loss position as a result of the COVID-19 pandemic.
• It is also meant to complement the temporary full expensing measure by allowing more companies to take advantage of expensing, while it is available.

ESS – removing cessation of employment as a taxing point

• The Government is looking to support Australian companies in attracting and retaining talent by removing the cessation of employment taxing point for tax-deferred ESS that are available for all companies. By removing the cessation of employment taxing point, the measure will result in tax being deferred until the earliest of the remaining taxing points: 
  • in the case of shares, when there is no risk of forfeiture and no restrictions on disposal;
  • in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restrictions on disposal; or
  • the maximum period of deferral of 15 years. 
• The change to the cessation of employment taxing point will apply to ESS interests issued on or after 1 July following Royal Assent.

Patent box – tax concession for Australian medical and biotech innovations

• The Government is encouraging investment in, and the retention of, Australian medical and biotech technologies by introducing a patent box. Over twenty countries currently have patent boxes, including the UK and France. 
• From 1 July 2022 the patent box will tax income derived from Australian medical and biotech patents at a 17 per cent effective concessional corporate tax rate. Normally corporate income is taxed at 30 per cent or 25 per cent for small and medium companies. 
• Only granted patents, which were applied for after the Federal Budget announcement, will be eligible. 
• The patent box encourages businesses to undertake their R&D in Australia and keep patents here. 
• The Government will follow the OECD’s guidelines on patent boxes to ensure the patent box meets internationally accepted standards. 
• The Government will consult closely with industry on the design of the patent box and to determine whether a patent box is also an effective way of supporting the clean energy sector.

Digital economy – self assessing effective life of intangible depreciating assets

• The Government will allow taxpayers to self-assess the effective life of certain depreciating intangible assets for tax purposes, rather than being required to use the effective life currently prescribed by statute. 
• This will apply to patents, registered designs, copyrights, in-house software, licenses and telecommunications site access rights. Taxpayers will be able to bring deductions forward if they self-assess the assets as having a shorter effective life than the current statutory life. 
• This change is intended to reduce the cost of investment for business, and align the tax treatment of these intangible assets with the treatment of tangible assets. 
• Taxpayers will continue to have the option to use the existing statutory effective life when depreciating these assets. 
• This will apply to eligible assets acquired following the completion of temporary full expensing, which has been extended and will now end on 30 June 2023.