Overall, this has been an encouraging Budget for the mid-tier sector, the engine-room of the Australian economy.
We are very glad to see the extension of the “patent box” preferential tax regime, first proposed for the medical and biotechnology technology sector, into low emissions technologies – this will be a significant boost for encouraging further innovation into this sector, which is so important for Australia’s long-term future.
Eligible corporate income will be subject to an effective income tax rate of 17 per cent for income generated from patents granted or issued after 29 May 2022 and for income years starting on or after 1 July 2023. Given the differential between the Australian corporate tax rate of 30 per cent for large businesses and 25 per cent for smaller enterprises, the extension of the patent box to a broader range of eligible innovations provides a welcome boost to the commercialisation of innovation in Australia.
Australia has the potential to create a comparative advantage in clean energy generation and distribution, and it is important that the intellectual property we develop also continues to be owned here. This measure will be of interest to many companies and start-ups in Newcastle and the Hunter.
The announcements on employee share schemes are very good news and will make it much easier for many more companies to issue shares to their broader workforce. There are currently onerous compliance requirements for unlisted companies when granting share scheme interests, and it is welcome they are being eased. These proposed changes, coupled with the ESS start-up tax concessions, make Australia much more competitive in the start-up space. Once again, participants in Newcastle’s start up ecosystems could benefit from the rules.
It was pleasing to see a skills and training 120 per cent tax deduction for small businesses to boost their spending on external training, provided to their workforce. This is an important $550m boost for smaller firms trying to upskill their employees in this era of a shortage of talent.
There is also a $1bn technology investment boost to support digital technology expenditure by small businesses. They will be able to deduct 120 per cent of the costs incurred on spending on business expenses and depreciating assets that support digital adoption. Extending these measures to larger businesses would also be beneficial.
All of this builds on the measures announced by the Treasurer last week to improve business cash flow by more dynamic management of PAYG tax instalments, and to bring more digitalisation to a range of business tax compliance processes. Reducing the administration burden on business through improved and integrated systems was a theme of the Budget, which had a number of measures in this respect:
- Pre-filling of payroll tax returns: facilitating shared single touch payroll data with State and Territory governments for pre-filling payroll tax returns to be implemented in late 2023.
- Automatic reporting of taxable payments: eligible businesses can report taxable payments reporting system data via software at the same time as activity statements from 1 January 2024.
- Digitising trust income reporting: all trusts will have the option to lodge income tax returns electronically, increasing the automation of trust reporting processes. This measure is intended to be in place 1 July 2024, subject to the capacity of software providers to deliver the solutions required for the process.
- Aligning excise and other reporting requirements: a move from monthly to quarterly reporting for excise and excise-equivalent customs duty for manufacturers, importers and distributors in the alcohol and fuel sectors with less than $50 million of annual turnover is proposed from 1 July 2023.
One downside in the Budget was the absence of any extension of the Instant Asset Write-Off past June 2023. In our pre-Budget survey*, many small to medium sized businesses said this was a valuable initiative to boost investment which they would have liked to be retained for the longer-term.
They also indicated support for structural tax reform. It was always unlikely in a pre-election budget, but some signs of the Australian tax system moving away from its imbalance towards direct taxation would have been encouraging.
From the perspective of larger private groups, family businesses and family trusts, and high net worth individuals, one source of concern to note from the Budget is the extra $650m the government is devoting to extending its tax avoidance taskforce for another two years to 2025. Already the tax compliance COVID holiday was long over and we have seen a strong ramp up of ATO activity recently.
In our pre-budget survey, many respondents were concerned at the prospect of a tax audit. They should be even more focused now on getting properly-documented tax risk governance frameworks in place, as the ATO requirements demand, and reviewing their position on known ATO focus areas.
For the bigger end of corporate Australia, the Budget, focused as it was on cost of living pressures, had no large corporate tax announcements, as most Budgets have. But it was perhaps surprising there was no formal mention in the Budget that Australia would adopt the OECD’s ‘BEPS 2.0’ measures, including the global minimum tax rules for included multinationals, given that a 2023 start date has been anticipated.
There was little specifically aimed at larger companies. But for Australia’s mid-market businesses there was a lot to like.