Budget 2019 - Small & Medium Business

By

Anne-Marie Tassoni, Partner
David Clark, Director
Tristan Bowman, Manager


Posted 03 April 19

There were a few small wins for small business in this year’s budget but nothing unexpected nor previously flagged. This reflects a continuation of the tax agenda from previous years along with a focus on addressing the skills shortage, though in a different manner to previous budgets. Research & Development incentives have been pruned further without any refining or refocusing of the program – this will disappoint the start-up community. All in all, it is modestly positive for small business but without a proper focus on productivity improvements the budget is short-sighted in its approach to innovation reforms.

Write Off, Right On…

An extension of previous policy, small and medium businesses can now avail themselves to the $30,000 asset write-off, up from $20,000 for FY19 (and a further improvement on the Coalition’s announcement in January of their intent to increase the threshold to $25,000). In short:

  • The policy has also been expanded to businesses with up to $50 million turnover – previously it was limited to turnover of $10 million or less.
  • The write-off applies on a per asset basis and hence can be applied to multiple assets.

A small business that spends $40,000 on two new assets (cost of $20,000 each) will receive a tax benefit of $11,000 at year-end.

The intent is to keep business spending at a time where business investment has been subdued. As Frydenberg noted, it allows “a cafe to get a new fridge or grill, a plumber to buy new tools or a courier a new van”. This is all well and good, but if business doesn’t have access to capital then it is a moot point, and following the Royal Commission there has been a moderation in lending to small and medium enterprise.

Short of making this policy a permanent fixture, this is available to business from now until 30 June 2020.

What’s Old is New Again

Frydenberg reaffirmed the company tax cuts legislated in October 2018 which bring forward the tax cuts for small business after their larger tax agenda failed to get through parliament last year. Where previously the end 25% tax rate was scheduled to come into effect in 2026-27, it is now due in 2021-22.

Company Tax Cuts

Diagram showing Company Tax Cuts

A small business with $750,000 of pre-tax profit will be $18,750 better off in FY2021 than they would have been under the previous tax framework.

Addressing the Skills Shortage

The troubled Skilling Australians Fund announced in the 2017 budget, which did not get the support of state Labor governments, has been replaced by the 2019 skills package in a revamp of how the Federal government is addressing the skills shortage. Touted as a new $0.5 billion spending program, the skills package is really just a diversion of funds that were earmarked under the failed Skilling Australians Fund.

The hallmark of the program is support for 80,000 new apprenticeships over the next four years through:

  • Incentive payments for employers for apprenticeship placements (up to $8,000), and
  • Direct payments to apprentices (up to $2,000).

For a business that may be considering taking on an apprentice, this may be the sweetener they need to press the ‘go’ button.

All in all, the “new money” contribution to the program is about 1/5th of the total program with $463 million being diverted from the Skilling Australians Fund.

Banks Stepping Out, Government Stepping In

Announced in November 2018 following the fallout from the Royal Commission, the Australia Business Securitisation Fund will supply liquidity of up to $2 billion through a warehouse facility. Given the progressive withdrawal by the big 4 banks from the small & medium enterprise (SME) market, this will help small business access liquidity to fund operations and expansion.

Innovation – The Final Nail in the Coffin

Former PM Malcom Turnbull’s catchcry was all about innovation, innovation and innovation. And the 2017 budget backed this up. But since then there has been a withdrawal of support for R&D through a $4 billion reduction in the R&D tax incentive scheme across the 2018 and 2019 budgets.

A review into the grants by Bill Ferris, John Fraser and Alan Finkel found that the threshold of what constituted R&D spend made it too easy for big business to claim efficiency improvements such as software innovations. Instead of refining the program and redirecting the $4 billion in savings to better target R&D programs and innovation, the cuts reflect a pivot away from the innovation agenda.

There are no surprises here for business. The government is addressing the skills shortage with a different approach to previous years and is reducing the tax burden to make small business more competitive on the international stage. An extension and expansion of the write-off scheme to businesses with turnover of $50 million should see some increased capital investment from business and be a sweetener for suppliers to business.

Budget 2019

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This article is part of our 2019 Budget commentary and one such starting point in our highly considered process that will ultimately manage asset and wealth protection.

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