The “COVID-19 recovery” budget handed down by Treasurer Josh Frydenberg on 6 October focused on three key pillars to jumpstart the economy - measures aimed to create more jobs, encourage investment and promote spending.

Every budget has “winners” and “losers” and this one is no exception. While it may take several months (even years) to see the winners from the losers, at first glance we think this budget winners are lower income earners, young job seekers and small businesses. On the flipside, we think the likely losers are high income earners (like really high!), middle aged people out of work and those currently on JobSeeker.

We’ve outlined everything you need to know in plain english below - read on for more detail and keep in mind the following key terms:

FY21 = 12 months ending 30 June 2021
FY22 = 12 months ending 30 June 2022

FY19 = 12 months ending 30 June 2019
FY20 = 12 months ending 30 June 2020

Budget measures impacting your business

Our mate, Josh Frydenberg is hell bent on turbocharging the economy, and the way he plans to do that is by pumping money into the private and small business sector. We’ve outlined everything you need to know in plain english below - read on for more detail.

Loss-Carry-back

At a glance: Did someone say refund? If a business paid company tax in FY19 or a later income year then it may be able to get this money back (cha ching) through a temporary measure allowing companies to apply tax losses generated in FY20, FY21 or FY22 against previously taxed profits. This means you get a refund!
What’s the impact? If relevant to you, you might be able to elect to receive the tax refund when you lodge your FY20, FY21or FY22 tax returns. These rules are weird and complex so get in touch with someone in our Accounting team here to see if this might apply to you or if you want more detail.

☝🏻 Our tip:: If you’re after some clarity around how much cash you can expect to get back, creating a forecast for FY21 and FY22 is a great place to start. Book a chat with the Accounting team for help creating a forecast from scratch or revamping one you already have.

Changes to R&D

R&D is back baby! Remember all that chat not so long ago about changes to the R&D tax incentive? Lots of people in the startup ecosystem were really angry about it, including some of our startup stars (Mike Cannon-Brookes of Atlassian and Melanie Perkins of Canva had this to say about it). In typical backflipping fashion, these proposed changes have been scrapped and R&D has been made even better than it was before. Here is what you need to know…

At a glance: For small companies (those with revenue of less than $20m) the refundable R&D tax offset is being INCREASED to 18.5% above your applicable company tax rate and there will be NO cap on cash refunds. These measures will apply from 1 July 2021.

What's the impact? R&D is a fundamental part of encouraging businesses to innovate, grow and create more jobs! It's great to see the government backing Australian business to invest in R&D as a means to support Australia’s economic recovery and stimulate economic growth. We expect this to create a huge incentive for businesses to be more experimental and innovative.

☝🏻 Our tip:: The R&D tax incentive can be a huge help to your business. Getting it right from the start is really important, and maintaining proper documentation is really critical to substantiating any R&D claims made. Get in touch with someone from our Accounting team to discuss tips and tricks we recommend you put in place prior to starting your R&D journey.

Asset Write-offs

At a glance: Who needs a reason to buy new stuff anyway? Businesses can now immediately write off the cost of assets of any value. This measure will apply until 30 June 2022.
What's the impact? Given the recent introduction of the instant asset write-off measure as part of the COVID-19 stimulus package allowing businesses to write off the value of assets up to $150k, we don’t think this budget announcement will have a HUGE impact on businesses in our startup community where capital outlay is typically lower than $150k.

☝🏻 Our tip:: If you paid company tax in the year ended FY19 or FY20, it might be worth bringing forward the purchase of assets before 30 June 2021 as this expenditure might put you in a tax loss position for FY21. The tax loss generated in FY21 can be used to offset tax paid in FY19 and FY20 which results in a refund to you. This idea combines the use of two budget announcements, this one and the loss carry-back announcement. Get in touch with someone from our Accounting team if you’d like to know more.

JobMaker Hiring Credit

At a glance: For 12 months starting 7 October 2020, businesses will receive a wage subsidy for each new hire below the age of 35 who was previously unemployed and provided the new hire works at least 20 hours a week. The subsidy has two tiers - $200 a week for staff aged 16 to 29, and $100 per week for staff aged 30 to 35.

What's the impact? This measure is set to replace JobSeeker and encourages businesses to employ new people.

☝🏻 Our tip:: It is expected that businesses will report JobMarker Hiring Credits using Single Touch Payroll. Get in touch with someone from our Accounting team if you’d like to know more or need help getting ready.

Other Tax Concessions for Small Business

In addition to everything outlined above, there were several other tax concessions announced for small businesses. Some are still TBC and others have been referred to but are still super vague. We’ve prepared a brief summary below.

From 1 July 2020:
- Immediate deduction for certain “set up” costs for start-ups including the costs of establishing a business entity, raising equity, or seeking advice in relation to a business restructure or expansion.
From 1 April 2021:
- Exemption from fringe benefits tax on certain benefits provided by employers to employees. Note, this won’t be relevant to you if you don’t pay fringe benefits tax!

From 1 July 2021:
- Additional tax incentives include simplified trading stock rules and simplified accounting methods for the GST purposes for particular businesses.
- New debt restructuring and liquidation pathways for small businesses, and consequential measures to ensure that the banking and insolvency sectors can meet the needs of small businesses in trouble. More info here.

☝🏻 Our tip:: These concessions and more are still being finalised. We will keep you updated with more info as it’s released over the coming months. Get in touch with someone from our Accounting team if you’d like to know more.

Budget measures impacting you personally

In addition to the Budget measures impacting businesses, there were quite a few that will impact us as individuals too. We’ve outlined our thoughts below, read on for more detail.

Personal tax cuts

The cornerstone of the Budget was the personal tax cuts which are expected to flow to more than 11 million Aussies. It’s seriously good news that’s come at a seriously good time, and it means that as soon as legislation is passed (date TBC - we’ll keep you posted), you can expect more money in your regular take home pay!

At a glance: How does it sound to keep more of what you earn? This measure will result in tax cuts of $2,160 per year for people earning up to $90k, plus an additional ‘one-off’ tax offset equal to a maximum of $1,080. For people earning more than $120k, the tax cut increased to $2,745 per year.
What’s the impact? The tax cuts are back dated to 1 July 2020 so you should receive more money in your regular take home pay through the remainder of the FY21 year. You will receive the full extent of the benefit when you lodge your FY21 personal tax return 🤑.

☝🏻 Our tip:: Get on top of your personal tax affairs right now!!! Make sure you are up to date with prior year lodgements and that you are keeping track (and proof) of any deductible expenditure. The sooner you lodge your personal tax return after 30 June 2021, the sooner you get paid back your sweet sweet cash. Reach out to someone in our Accounting team for more information or to get a headstart on the FY21 personal tax compliance.

The budget also touched on the government's plan to further cut personal marginal tax rates and brackets from FY25 onwards. If this happens, individuals earning up to $200k may be taxed no more than 30%. If and when these laws are passed, early stage founders might choose to operate as a sole trader for longer before setting up a company (only in some cases). We suggest keeping tabs on this over the next 12-24 months.

Other Measures

Superannuation

Reform to superannuation which is estimated to result in $17bn in super savings for Australians over the next 10 years.
More info here.

Cybersecurity

Additional $1.7bn funding put towards a cybersecurity plan to keep Australians safe and secure online.

Job Creation

Via the JobTrainer program, the government plans to provide businesses who employ new apprentices or trainees $1bn in support via a 50% wage subsidy.
Women made up a majority of those who lost their jobs during COVID. The government announced their women economic security statement which included $240m of funding be spent on programs to support to create jobs and opportunities for women in our workforce.
More info here.

Education

An additional $1bn into the Research Support Program to support universities to continue to perform world class research
More info here.

Environment

The government has pledged $2bn to help address climate change via supporting low emissions and renewable technologies, and $233m invested in modernising Australia’s recycling infrastructure. As part of the budget, the government announced the ban of exporting plastic, paper, tyres and glass waste.
More info here.

Health

Record funding of $94bn provided for medical, pharmaceutical and hospital services. The number of Medicare funded mental health services have also doubled.
$1.6bn of funding provided to support older Australians who wish to stay at home for longer by providing home care packages.
More info here.

Got questions about the FY21 Budget and how it might affect you and your startup? Book a chat.

Photo by Annie Spratt on Unsplash