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Federal Budget 2021-22: Business tax

Federal Budget 2021-22: Business tax

The Government has provided further support for capital investment by businesses and assistance with cash flows by extending the “temporary full expensing” measure as well as the loss carry-back offset for an additional income year. Important changes to the minimum threshold for the superannuation guarantee charge (SGC) have also been announced.

Key take-aways
  • Temporary full expensing measures to be extended by 12 months until 30 June 2023.
  • Loss carry-back offset to be extended by 12 months, allowing corporate entities to carry back tax losses for the 2022-23 income year for up to four income years, as far back as the 2018-19 income year.
  • Removal of minimum income threshold for superannuation guarantee, effective from 1 July 2022.

12-month extension of temporary full expensing

The temporary full expensing measures introduced in the 2020-21 budget provided a deduction for the full cost of eligible depreciating assets first used or installed ready for use before 30 June 2022 to entities with aggregated turnover of less than $5 billion. The measure will now be extended until 30 June 2023 providing additional time for eligible entities to make capital investments and benefit from accelerated tax depreciation.

All other features of the measure should remain unchanged including the alternative test for entities that have aggregated turnover of $5 billion or more, the ability to opt-out on an asset-by-asset basis, availability of full expensing on capital improvements to existing depreciating assets and the ability to write off the entire balance of a general small business pool for small business entities using simplified depreciation.

Pitcher Partners welcomes the extension of these measures that apply to all but the largest businesses in Australia. While the Government announced that “old” tax depreciation rules will apply again from 1 July 2023, the past few years have seen continual extensions of these accelerated depreciation measures resulting in a set of complex and inconsistent rules for business to navigate.

Care needs to be taken for those taxpayers operating through unit trusts. The temporary full expensing measures can give rise to significant tax timing differences which, if distributed through a unit trust as either income or capital, could result in taxable capital gains to the unit holders. As noted above, an option to elect out of temporary full expensing may help to assist this issue in certain cases.

12-month extension of loss carry-back

The loss carry-back offset introduced in the 2020-21 budget will also be extended by a further 12 months, allowing corporate entities to carry back tax losses for the 2022-23 income year for up to four income years, as far back as the 2018-19 income year.

The loss carry-back offset is available to corporate tax entities with aggregated turnover of less than $5 billion and is intended to complement the temporary full expensing measure where tax losses are generated through significant capital investments that give rise to immediate deductions. The measure allows for cash refunds with the lodgement of the tax return rather than future tax savings from carrying forward tax losses to later years and can provide additional cash flow to support working capital for companies who make tax losses after previously being in a taxable position.

Pitcher Partners also welcomes the extension of these measures, which provides additional funding to businesses to assist in business capital investment. We note the loss carry-back offset is limited to a company’s franking account balance. This limitation may prevent entities from accessing the measure where they have paid out franked dividends during the year. From a middle market perspective, there will not be any change to expand the measure to businesses which operate through trusts and distribute to corporate beneficiaries. This is because trust losses cannot be carried back to enable the corporate beneficiary to obtain a cash refund.

Pitcher Partners advocated for a lower corporate tax rate for the middle market in our Pre-Budget submission as an additional means to providing businesses with cash to fund investment and working capital. It is disappointing that the Government has not considered adopting this measure which, together with the temporary full expensing measure, would have provided a significant incentive for investment into Australian businesses into the foreseeable future. 

Removal of minimum income threshold for superannuation guarantee

Currently, employers are not required to make superannuation contributions under the superannuation guarantee legislation for employees in receipt of salary and wages of less than $450 in any calendar month. Many employers have configured their payroll systems to accommodate this threshold.

The Government has announced that this threshold is to be removed with effect, most likely from 1 July 2022. This measure will mean that superannuation support must be provided to all employees regardless of the level of income in any one month and is designed to ensure low income earners are not disadvantaged. The proposed changes will primarily impact employers with casual and part-time employees such as those in the retail and hospitality industries.

Employers will need to keep track of this change to ensure their payroll systems are correctly set up to meet their obligations once the measures take effect.

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This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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