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Federal Budget 2021 Insights: Supporting business to grow

In addition to the Budget measures to specifically attract global business and innovation, a number of other welcome measures were announced to more broadly support business taxpayers. These measures will support businesses to invest and grow, remove unintended consequences and reduce compliance costs.

Extension of temporary full expensing measure

A one year extension to the “temporary full expensing” measure introduced in last year’s Federal Budget has been announced to further support business investment and to create more jobs.

This measure will now allow eligible businesses (those with an aggregated turnover of less than $5 billion or corporate tax entities that meet an alternative $5 billion total income test) to deduct the full cost of eligible depreciating assets acquired from 7:30pm (AEDT) on 6 October 2020 and first used or installed ready for use by 30 June 2023, instead of the original deadline of 30 June 2022. From 1 July 2023, normal depreciation arrangements will apply.

For further details on temporary full expensing, refer to our Tax Alert Temporary full expensing of depreciating assets.

One more year of loss carry-back rules

The Government has also announced that the temporary loss carry-back measure introduced in the 2020-21 Federal Budget will be extended to allow eligible companies (with aggregated turnover of less than $5 billion) 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 when they lodge their 2022-23 tax return.

Accordingly, eligible companies will be able to 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. There are no other changes to eligibility for the loss carry-back offset, such that it remains limited to companies only.

For further details on loss carry back, refer to our Tax Alert Temporary loss carry-back rules - What you need to know.

Amending the tax hedging rules

The Government has announced it will make technical amendments to the taxation of financial arrangements (TOFA) legislation which will include facilitating access to hedging rules on a portfolio hedging basis. The amendments will also correct unintended outcomes so that taxpayers are not subject to unrealised taxation on foreign exchange gains and losses unless this is elected. These changes will take effect for relevant transactions entered into on or after 1 July 2022.

This is a welcome change for superannuation funds and funds managers who commonly enter into hedging on a portfolio basis and would otherwise not qualify for tax hedging. Whilst the details of these changes are still to come, it is expected to reduce compliance costs by providing a streamlined approach to allocating hedging gains and losses, and to have a beneficial impact on the calculation of the foreign income tax offset cap.

These changes are in addition to the previously announced reforms of TOFA from the 2016-17 Federal Budget which remain unenacted.

Boost to minerals exploration

It was also announced in the lead up to the Budget that the existing Junior Minerals Exploration Incentive (JMEI), which is due to expire at the end of this current financial year, will be extended for four more years. The JMEI, originally introduced in 2017, is designed to encourage investment in small minerals exploration companies that carry out greenfield mineral exploration in Australia. It does this by giving eligible exploration companies the ability to turn losses generated from greenfields minerals exploration expenditure into tax credits that can be distributed to investors.

The extension of the program will see it continue through to the 2024-25 income year with $100 million in additional funding. There is an annual cap on exploration credits that can be allocated each year, with credits allocated by the ATO on a first come, first served basis. If any part of the annual exploration credit cap is unallocated for an income year, the amount that is unallocated will be carried over to the following income year.

This measure will be welcomed by small junior exploration companies seeking access to capital and that currently are not practically able to access the benefit of the temporary loss-carry back measure.

Corporate tax residency rules

In last year’s Budget, the Government announced amendments to clarify the corporate residency test to address uncertainty for foreign incorporated entities.

In this 2021-22 Budget, the Government announced it will consult on broadening this amendment to trusts and corporate limited partnerships. The Government will seek industry’s views as part of the consultation on the original corporate residency amendment.

Allowing small businesses to pause ATO debt recovery action

The Government will allow small businesses to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (AAT) to pause or modify tax debt recovery actions taken by the Australian Taxation Office (ATO), such as garnishee notices and the recovery of General Interest Charge or related penalties, where the debt is being disputed in the AAT.

Currently, small businesses are only able to pause or modify ATO debt recovery actions through the court system.

This measure is a welcome initiative for small business taxpayers as it should allow them to focus their resources on the substantive matter before the AAT rather than costly and complex debt collection issues, particularly where the liability would be extinguished if the taxpayer is successful in the substantive matter before the AAT.

Small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year will be eligible to use this approach, which should be available in respect of proceedings commenced on or after the date of Royal Assent of the legislation.

Supporting small breweries and distilleries

From 1 July 2021 eligible brewers and distillers will be able to receive a full remission of any excise they pay, up to an annual cap of $350,000. Currently, eligible brewers and distillers are entitled to a refund of 60 per cent of the excise they pay, up to an annual cap of $100,000.

This will align the benefit available under the Excise Refund Scheme for brewers and distillers with the Wine Equalisation Tax (WET) Producer Rebate and is aimed to accelerate the resurgence of Australian independent brewers

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Jonathan Malone

Partner, PwC Australia

Tel: +61 (2) 8266 4770

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Gary Dutton

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