Budget 2020 - Small and Medium Business
Posted 07 October 20
Write-Off into the Sunset
In this year’s Budget, we saw Josh Frydenberg announce an extension of the asset write-off scheme which has been in place since 2012. It started as a trickle in the 2012 Budget but is now a fully-fledged river of investment incentives.
From a humble start in 2012 with $1,000 write-offs available for companies with less than $2 million, this year it has been extended to companies with less than $5 billion turnovers and now applies to the full cost of eligible assets. For businesses with a turnover of less than $50 million, this also applies to second-hand assets. This is summarised in Table 1 below.
In the same vein as prior budgets, it is an attempt to bring forward investment spending. The widening of the turnover test will make it available to approximately 99% of Australian businesses (by number, not by revenue). It has been marked as a “game changer” by Frydenberg but the proof will be in the capex pudding. This time, it may well be different given the scope of the program.
Carry Me Back to the Future
There are several changes that small and medium business owners should be aware of for FY2021 and onwards – some more significant than others.
The most significant of these measures is the ‘loss carry-back’ provisions to provide a boost to SME business cash flow, a policy that was briefly introduced to Parliament by the Gillard government in 2012 and has now been dusted off by a conservative government. This allows businesses who make a loss in FY2020-FY2022 to offset these losses against previously taxed profits, essentially reversing the direction of carry-forward losses that are available to offset against future years’ profits. In practice, it will provide business with an immediate tax refund from profits made in prior years rather than waiting for future profit years to be able to use those losses.
The result is a boost to much-needed cash flow for loss-making businesses. In combination with the write-off scheme, it also extends the enticement for businesses to invest in capital expenditure. The below table gives the example of a business that makes a loss through asset purchases that can be written off in FY2021; an otherwise profitable business pushes itself into a loss by spending on asset purchases.
The result is a direct boost to cash flow to offset those asset purchases rather than waiting for future years’ profits to carry that loss against, an extra incentive for businesses to spend. In addition to the write-off scheme, Treasury estimates an extra 50,000 jobs will be created through these schemes.
Other Tax Concessions for Small Business
There are several additional measures for SME business, some of which are noted below:
- Extending the 'small entity turnover threshold' from a turnover of $10 million to $50 million. This allows for more businesses to:
• Immediately deduct start-up expenses and prepaid expenditure,
• Receive PAYG instalment concession.
• Fully expense the purchase of second-hand assets.
- Extension of Fringe Benefits Tax exemptions:
• Allows employers to rely on existing corporate records rather than employee declarations, reducing red tape,
• Training courses provided by an employer will now be exempt, even if it isn’t relevant to the worker’s current role. This is particularly helpful for workers soon-to-be redundant.
- Business support grants from the Victorian Government will be classified as non-assessable, non-exempt income, meaning no income tax will be paid on these payments.
There is a recurring theme in this year’s Budget around supporting economic growth through investment and construction. This flows through to backing apprentice trades, a policy which was announced earlier this week. Any business that employs a new apprentice will receive a subsidy of 50% of their wages, up to $7,000 per quarter per apprentice or trainee, for 12 months.
There is no test for size, industry or location, nor is there any test for additional headcount but there is a limit to a cap of $1.2 billion or 100,000 jobs. For businesses that were planning on taking on a trade, this is a fillip, and for businesses not planning to do so it may induce them to think again. In combination with the HomeBuilder scheme, it may push business to take on more trades and expand their skilled capacity.
After the R&D tax incentive scheme was heavily scaled back in the 2019 Budget (and heavily criticised by the start-up community), it is somewhat back on the table. For businesses with a turnover of less than $20 million, the $4 million cap on annual cash refunds announced in the 2019 Budget will not proceed, and the refundable tax offset is now set at 18.5% above the company’s tax rate.
For businesses with turnover greater than $20 million, there is a partial streamlining of the measures which, given the complexity, we won’t go into any detail here.
The changes will make it slightly more appealing for business to engage in research and development, but without an overhaul of how the scheme is run there is still too much uncertainty and cost for business to defend any R&D claims, something which has been brought into focus over the past 12 months.
JobSeekers Under Age 35
In a clear pitch to garner some attention from younger voters, prospective employers are now incentivised to employ those aged between 16 and 35 years of age currently receiving welfare payments such as Youth Allowance or JobSeeker. This JobMaker Hiring Credit is split into two tiers:
- A $200 per week payment if a business hires a 16 to 29-year-old; and
- A $100 per week payment if a business hires a 30 to 35-year-old.
The payment will be available for 12 months to a maximum of $10,400 for every new position created. The worker must complete at least 20 hours per week and the business must prove it is a new job by illustrating higher overall headcount and payroll figures.
A chemical manufacturing business employs a 28-year-old laboratory tester at the award wage of $21.54 an hour for 20 hours a week. They pay the employee $430.80 a week and receive $200 a week back from the Federal Government. The effective cost to the business per hour of labour is $11.54, an effective incentive for the business to expand their payroll.
This is a scheme that will help workers transition from JobKeeper to JobSeeker and then to new, hopefully permanent, roles.
Regional Business and Agriculture
There is a $550 million package to help those regions recover from COVID-19 and from the effect of the drought, including $250 million to increase regional tourism, $30 million to improve mobile/broadband services and $150 million to help farmers recover from drought and prepare for future droughts.
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Photo by Tim Mossholder