Victoria’s technology and startup businesses play a key part in both the State and Federal economy. Victoria has a rich ecosystem of innovative businesses supported by willing investors, world class universities and accelerator programs, and a State government that recognises the importance of tech enterprises to the State’s economy.
William Buck’s Technology Services Team has summarised the hits and misses of this year’s Federal budget. The key items that Victorian Technology businesses need to know are outlined below.
1. R&D Tax Incentive Changes
The Federal Government is changing the R&D Tax Incentive benefit, with many businesses being better off. The key features of these changes, expected to commence from 1 July 2021, are:
a) For companies with annual turnover less than $20 million, the R&DTI benefit will be 18.5% above your company’s tax rate. This equates to a refundable tax credit of 43.5 cents out of every $1 spent on eligible R&D in 2022, and therefore the R&D rate remains unchanged for companies that will access the 25% company tax rate.
b) For companies with annual turnover of $20 million or more, the non-refundable R&DTI benefit will be tiered based on your ‘R&D intensity’:
- Tier 1: For R&D expenditure up to 2% of your total expenses, the R&DTI benefit will be 8.5% above your company tax rate. This equates to a non-refundable tax credit of 33.5 cents out of every $1 spent on eligible R&D*, which is lower than the 38.5 cents per dollar (38.5%) rate companies can access under the current program.
- Tier 2: For R&D expenditure above 2% of your total expenses, the R&DTI benefit will be 16.5% above your company tax rate. This equates to a non-refundable tax credit of 41.5 cents out of every $1 spent on eligible R&D above 2% intensity, which is 3 cents per dollar higher than the current 38.5% rate and so incentivises companies to increase R&D intensity above 2%.
For larger businesses, eligible R&D expenditure will be capped at $150 million per year.* Assuming a 25% company tax rate.
2. Grants and other support
The Coalition Government announced funding for several programs that support businesses in the Technology industry. Not a lot of detail exists on how a number of these programs will work so keep an eye out for details in the coming weeks and months.
- Digital Business Plan: $796.5 million allocated to various programs over four years.
- Supporting women in technology businesses: $100 million allocated to various programs over four years.
- Modern Manufacturing Initiative: $1.5 billion allocated to various programs over five years, which we hope will extend to supporting technology businesses connected to ‘modern manufacturing’.
- Round Three of the Victorian government’s business grants are exempt from income tax.
- Support for the take up of Blockchain
3. “JobMaker” Hiring Credit
The JobMaker hiring credit is a new Federal Government wage subsidy and will be available to employers who hire new employees aged 16-35 from 7 October 2020 to 6 October 2021, where those employees have recently been on JobSeeker and other Government support programs.
The government expects that “around 450,000 positions for young Australians will be supported from 2020-21 to 2022-23”.
We expect most Technology businesses are potentially eligible, but not while also claiming the JobKeeper or other government funded wage subsidies.
Payments to employers will be tiered as follows:
- $200 per week per eligible employee aged 16 to 29, for up to 12 months (max. $10,400); and
- $100 per week per eligible employee aged 30 to 35, for up to 12 months (max. $5,200).
The program will be administered via the Australian Tax Office, with registration due to open on 7 December 2020. The JobMaker Hiring Credit Factsheet details further information.
- Incentivising Investment in Technology Businesses – Tax assisted programs like the Early Stage Innovation Company (ESIC) and Venture Capital investor tax concessions are great for attracting investment in innovative businesses. However, we see three missed opportunities here:
a) Early Stage and Venture Capital investment programs are extremely generous but still not well known. We’d love to have seen the Government promote these programs again.
b) In April, we saw a lot of proposed investment in innovative businesses dry up as investors faced uncertain economic conditions produced by COVID-19. We think that untapped investment is still sitting there in the background and the Government needs to focus more on building confidence in the economy to unlock this capital.
c) The tax rules surrounding employee equity plans are still extremely complex, creating several unintended tax outcomes and uncertainty for private businesses and their employees. It would be great to see the government recognise this and iron out the remaining issues.
- Support for accelerators and commercialisation organisations
Accelerators and other commercialisation organisations play a vital role incubating technology business in Victoria. There is no direct support in the Budget, apart from some support to University research programs.
- Taking our technology to the world
The Budget was very targeted in its support packages for businesses in the Infrastructure, Manufacturing (with limits), Agriculture and Pharmaceutical industries. There appears to be very limited support for taking Australia’s technology to the world.
What impact will the Federal Budget have on your business? Our Technology Team would love to hear from you to discuss the impact it will have on you and your other business concerns.