Tax concessions worth $206 million on income from derived from Australian medical and biotechnology patents is one of the few headline investments for the tech and startup sector in the 2021 federal budget by treasurer Josh Frydenberg.
The Government is offering a Patent Box regime with a low 17% corporate tax rate to boost Australian ownership of medtech and biotech patents.
There was little new news for the sector when the Treasurer read his budget speech, with most of the details relating to digital innovation announced last week.
The good news, looking at the fine print in the budget papers, is there were no cuts targeting the sector, unless you could the $400 million in reduced funding to already devastated universities over the past financial year.
Overall, it’s a modest haul for the digital economy, despite last week’s headlines of $1.2 billion spent over six years, with nearly half of it going to the government upgrading its own digital capabilities via MyHealth Record ($302m) and MyGov ($200m).
The same figure, $1.2 billion, is in the budget to encourage investment in regional hydrogen hubs over the next decade.
To put that figure in perspective, the budget has a $1.1 billion expenditure saving by replacing jobactive with a self-service digital portal for job seekers.
The budget deficit this year is projected to be $161 billion, falling to $106.6 billion deficit (5% of GDP) in FY22. That’s right, Australia will have a $2.1 trillion economy next financial year.
To recap the Morrison government’s digital economy package, announced last week, with funding stretched out between 4-6 years, it includes:
- $12.7 million for the expansion of the Digital Solutions – Australian Small Business Advisory Services.
- $15.3 million to drive business uptake of e-invoicing
- $53.8 million for a National AI Centre and four AI and Digital Capability Centres to support small and medium business in adopting AI
- $33.7 million in grants to businesses working with government to develop AI solutions to national problems
- $18.8 million for a new 30% refundable Digital Games Tax Offset for local games developers
- $16.5 million to identify and collate Australian government data assets to establish a searchable national data catalogue
- $111.3 million to the Consumer Data Right, accelerating the rollout beyond Open Banking to energy and telecommunications
We’re great supporters – dare we say investors? – in Australia’s brewing and distilling startups, so we’ll $225 million in excise tax relief for small-scale alcohol brewers and distillers to the startups allocation.
Employee Share Schemes
One issue close to the heart of founders is the Employee Share Scheme (ESS) and the government is introducing changes designed to help local companies engage and retain talent when competing globally.
Under the current rules staff who are part of an ESS can defer tax on their stake until the stop working there or 15 years from the date the ESS was issued.
The government wants to remove the cessation of employment as a taxing point.
It’s also looking to remove regulatory requirements around disclosure documents required under the Corporations Act for employers who provide ESS interests where: the employer is not charging, or lending to the employees to whom the ESS is offered, or where the ESS offers are valued at less than $30,000 a year per employee.
But these changes are minor and for the startup sector, don’t fix the fundamental issue for anyone who isn’t eligible for the Startup Concession getting taxed on unlisted, illiquid shares or options that they cannot readily sell on an open market to cover any tax liability.
If you’re a profitable small to medium sized, with a turnover of less than $50 million, the previously announced reduced company tax rate of 25% kicks in on July 1 this year, but that also becomes the new franking rate on dividends too, so balance whether to pay dividends this year is an issue.
If your company’s spending on new plant and equipment, then you can get an upfront tax deduction for the full cost of the eligible items up until 30 June, 2023 . The instant write-off also applies to second-hand assets bought for the business purchases, if your turnover is less than $50 million after the Treasurer extended the measure for another 12 months.
Normal depreciation rules will kick in from July 2023, although there’s a faster depreciation rate for eligible intangible assets such as patents, designs and software.
And if you end up in a fight with the Tax Office, the government will give you the ability to ask the Administrative Appeals Tribunal to pause or modify ATO debt recovery action while the dispute is ongoing, rather than having the ATO chase you for the money.
Improvements to Australia’s insolvency rules which will increase thresholds for creditors to issue statutory demands, simplify insolvency arrangements where you operate through a trust, and improve the insolvent trading safe harbour provisions.
The budget also dangled the carrot of being able to claim refunds of tax paid in prior years where you have current year losses, by expanding access to the loss carry back regime.
The Treasurer has also improved access to government-backed loans under the SME Recovery Loan Scheme and there’s $1.6 billion over a decade to incentivise private investment in certain emissions reduction technology, but its less about renewables .
Women in business
The 2021 Budget is being marketed as for women with a $3.4 billion “Women’s Budget Statement”.
Half that figure, $1.7 billion, is about addressing childcare affordability to improve workforce participation. It would be reasonable to argue men also benefit on that front.
But the plan to remove the $450 threshold for Superannuation Guarantee payments means that employees will start to receive super from the first $1 earned, which is expected to benefit women the most.