Navigating New Tax Reforms: What Australian Businesses Need to Know

Tax reforms to stimulate economic recovery and support businesses, making it crucial for companies to understand these changes for competitiveness and compliance.

In July 2021, the Australian government introduced several tax reforms aimed at stimulating economic recovery and supporting businesses. Understanding these changes is crucial for companies to remain competitive and compliant.

1. Tax Cuts for Individuals

The government implemented tax cuts to alleviate the cost of living:

Reduced Tax Rates: The 19% tax rate was decreased to 16% for incomes between $18,200 and $45,000. The 32.5% tax rate was reduced to 30% for incomes between $45,000 and $135,000.
Increased Thresholds: The threshold for the 37% tax rate was raised from $120,000 to $135,000, and the 45% tax rate threshold increased from $180,000 to $190,000.

2. Tax Incentives for Alcohol Manufacturers

To support the recovery of the alcohol manufacturing sector:

Increased Concession: The tax concession for small brewers and distillers was increased, providing an additional $225 million in tax relief over the forward estimates period.

3. Employee Share Schemes (ESS) Reforms

The government announced changes to the regulatory and tax arrangements for employee share schemes:

Simplified Taxation: The reforms aim to make ESS more accessible and beneficial for employees, encouraging workforce participation and retention.

4. Research and Development (R&D) Tax Incentive

There were discussions about increasing the R&D tax incentive cap to encourage innovation:

Proposed Increase: Industry leaders advocated for raising the cap from $150 million to $250 million to support larger companies in their R&D efforts.

5. Tax Administration and Fairness

Concerns were raised regarding the fairness of the tax collection system:

Recommendations for Reform: Proposals included strengthening the Inspector General of Taxation, ensuring taxpayer protections, and shifting the burden of proof from taxpayers to the Australian Taxation Office (ATO).

Implications for Businesses

These reforms have several implications for businesses:

Tax Planning: Companies should review their tax strategies to take advantage of new incentives and deductions.
Compliance: Staying informed about changes in tax rates and regulations is essential to maintain compliance.
Financial Reporting: Adjustments may be necessary in financial statements to reflect the impact of these reforms.

By understanding and adapting to these tax reforms, businesses can better position themselves for success in the evolving economic landscape.

If you would like to review your strategies for 2021, book a complimentary consultation with DGMS Group.

Prime Minister of Australia. (2021). Tax cuts help Australians with the cost of living. Retrieved from https://www.pm.gov.au/media/tax-cuts-help-australians-cost-living
Budget 2021-22: Tax Factsheet. (2021). Tax relief for brewers and distillers. Retrieved from https://archive.budget.gov.au/2021-22/factsheets/download/factsheet_tax.pdf
The Australian Government, Treasury. (2021). Employee Share Schemes (ESS) reforms. Retrieved from https://treasury.gov.au/consultation/c2021-138967
The Australian. (2021). Cochlear boss Dig Howitt says Australia’s tax regime hinders R&D but there’s a simple fix. Retrieved from https://www.theaustralian.com.au/business/companies/cochlear-boss-dig-howitt-says-australias-tax-regime-hinders-rd-but-theres-a-simple-fix/news-story/675098d717fd0b1d18345ff745c3ee4a
The Australian. (2021). Australia’s tax collection system must be changed. Retrieved from https://www.theaustralian.com.au/business/australias-tax-collection-system-must-be-changed/news-story/90c4d3262cc90757bb9be45d92481642