Guide to Budget 2021’s financial and tax support for small businesses

Female business owner standing in front of cafe

After another tough year for various industries, especially tourism, aviation and the arts, businesses are once again a priority in the 2021 Federal Budget. 

Treasurer Josh Frydenberg last night committed billions of dollars to supporting small-to-medium enterprises (SMEs). The so-called second pandemic budget includes extensions to a range of business tax incentives as well as initiatives to help more individuals upskill and get back into the workforce. 

Those measures come off the back of the government’s plan to create more jobs and push Australia’s unemployment rate below 5% - supposedly the turning point at which wages growth and inflation rates can accelerate on their own.

Wondering what support the government is pledging to offer small businesses? Read on for the details. 

Temporary full expensing extended

As part of this tax incentive, businesses with less than $5 billion in annual turnover can claim immediate tax deductions on the full cost of buying a depreciating asset of any value, whether that’s equipment or machinery. 

Under the 2021 Budget, the government will be extending temporary full expensing by an additional year. In other words, instant tax deductions will now apply to any eligible assets purchased up to 30 June, 2023.

Just beware that there are some limitations to this scheme, according to H&R Block’s director of tax communications, Max Chapman.

“For businesses that want to retain some taxable profits - perhaps because the owner wants to take advantage of the tax-free threshold, the inability to exit the temporary full expensing scheme is a missed opportunity,” he said.

“Big business can opt out (the legislation was amended last December to specifically allow this) but small business can’t.” 

Loss carry-back also extended

This measure allowed companies with a turnover below $5 billion to write off any COVID-induced losses made in the 2019-20, 2020-21 and 2021-22 income years against previous taxed profits. The budget has now extended this by another year, to the 2022-23 income year

However, Chapman notes that the loss carry back scheme only relates to companies, so if your business is unincorporated (sole trader, trust or partnership), then you may be excluded from this benefit. 

Tax cuts 

The tax benefits announced by the government last night don’t stop there:

  • From 1 July 2021 onwards, SMEs will be able to access a lower corporate tax rate of 25%, reduced from 27.5%. 
  • For video game producers: The government also announced a 30% tax offset for the video game industry as part of its Digital Economy Strategy. It’s a move aimed at boosting our domestic video games development sector and helping it snag a bigger piece of the globe pie. 
  • For brewers: Starting in July, about 1,000 small craft brewers and distillers will also be able to claim a full refund on excise (a tax levied on certain goods including alcohol), up from 60%. The cap for these refunds will be raised as well, from $100,000 to $350,000. 

JobTrainer program gets a boost

In a bid to help drive down the jobless rate, the government will extend the JobTrainer program by another 12 months, with a promise to use the latest Budget to “double” its commitment to the JobTrainer fund. That means dedicating an additional $506.3 million to support more than 450,000 trainees, with matched contributions from state and territory governments.

JobTrainer, designed for young people aged 17-24 as well as unemployed Australians looking for work, was initially due to end in September last year but it was extended once to 31 March this year. So this will be its second extension.

JobTrainer includes two key components: 

  • Free or low-fee education courses in fields with skills shortages like IT and agriculture
  • A 50% wage subsidy for any apprentices and trainees hired by eligible SMEs, up to a cap of $7,000 per quarter (or $28,000 per year).

Incentives for startups

The government will also spend $129.8 million to encourage entrepreneurship and support individuals who want to start, run and grow their own businesses. 

For instance, there will be more placements available under the New Enterprise Incentive Scheme (NEIS) - a program that offers services such as free accredited small business training, business plan development and personalised mentoring. The number of spots for NEIS will be lifted from 8,600 to 12,000 per year. 

Deregulation to boost efficiency 

Another $134.6 million over four years will be poured into pushing forward the government’s deregulation agenda, which aims to make it easier for businesses to employ people and cut through some of the red tape. 

The Australian Small Business and Family Enterprise Ombudsman, Bruce Billson says this includes an investment into regulatory technology or ‘regtech’ to help smaller businesses better understand the ins and outs of hiring employees.

“Small business owners are hard-working, time-poor and don’t have the systems or resources needed to deal with onerous compliance requirements. Research shows a small business hiring its first worker can spend up to 18 hours getting their head around awards, pay rates, tax, OH&S and record-keeping obligations,” he said. 

“This government investment in ‘regtech’ is a positive step towards making it easier for small businesses to pay wages and entitlements correctly and on time, recognising how much they value their team.”

Find out what other measures have come out of the 2021 Federal Budget, or head on over to our business banking hub to stay on top of the latest news for Australian small businesses.