A number of business tax and stimulus measures were announced in the budget, which will mean significant opportunities for businesses to grow employment opportunities and return revenue into cashflow.
The Government will need to pass a range of laws to implement these announced changes, so there may be some tweaks to these initiatives over the coming weeks and months, but we’ve summarised the key inclusions for SMEs below (for full details and updates keep an eye on www.treasury.gov.au)
1. Instant asset write-off transformed
The recently upsized $150,000 instant asset write off, which was due to end on 31 December 2020, has been overhauled.
From 6 October 2020, until 30 June 2022, businesses with aggregated annual turnover below $5 billion can immediately deduct the full cost of eligible depreciable assets of any value in the year they are installed or first used.
Costs associated with improvements to existing eligible depreciable assets during the eligible period can also be deducted.
2. Carry-back business losses
Under a new loss carry-back incentive, businesses with aggregated annual turnover of less than $5 billion will be allowed to offset losses against previous profits on which tax has been paid, in order to generate a refund. This compares to the current situation whereby businesses are required to carry losses forward to offset profits in future years.
This means that losses incurred up to 2021 22 can be carried back against profits made in or after 2018
19. Eligible companies may elect to receive a tax refund when lodging their 2020 21 and 2021 22 tax returns. Those that don’t want to carry back losses under this measure can still carry losses forward as normal.
3. JobMaker – $200 weekly subsidy for new hires
Following on from JobKeeper and JobSeeker comes a new growth subsidy JobMaker. It lets eligible businesses claim a subsidy for up to 12 months that’s worth $200 per week for each new employee hired aged under 30, and $100 weekly for new employees aged 30-35. The subsidy will be paid quarterly in arrears, with the maximum credit claimable per new position created being $10,400.
New hires must be brought on from 7 October 2020 and work for at least 20 hours a week to be eligible – plus importantly, they must be former JobSeeker, Youth Allowance or Parenting Payment recipients, for at least one month out of the three months prior to them being hired. Australian businesses other than the major banks will be eligible.
4. Apprentices and trainees wage subsidy
The budget has an investment of $1.2 billion to support the hiring of new apprentices through an apprentices and trainees wage subsidy. For the first 100,000 new or recommencing apprentices hired from 5 October 2020 until 30 September 2021, employers will be eligible for a 50% wage subsidy.
The subsidy is limited to $7,000 per quarter for gross wages for new apprentices and trainees. All Australian employers can apply for the subsidy regardless of geographic location, occupation, industry or business size.
5. R&D tax incentive reforms
Various integrity measures and limitations to the Research and Development (R&D) tax offset have been reversed. The previously proposed $4 million cap on annual cash refunds won’t proceed – instead, from 1 July 2021 small companies with aggregated annual turnover of less than $20 million will see the refundable R&D tax offset set at 18.5% above the claimant’s company tax rate (as compared to 13.5% as announced in the 2018-19 budget).
This means for eligible small entities that are subject to the 25% corporate tax rate from 1 July 2021 onwards, the refundable tax offset rate should remain at 43.5%.
6. Fringe Benefits Tax and other tax concessions
Businesses with an aggregated annual turnover between $10 million and $50 million may fall eligible for additional tax concessions including:
• From 1 July 2020, deductions for certain start-up expenses and prepaid expenditure.
• From 1 April 2021, exemption from the 47% fringe benefits tax on car parking and multiple work-related portable electronic devices provided to employees, like phones or laptops.
• From 1 July 2021, access to remit pay-as-you-go (PAYG) instalments based on GDP adjusted notional tax, simplified trading stock rules and excise customs duty on eligible goods. Eligible businesses will also have a two-year amendment period apply to income tax assessments for income years starting from 1 July 2021.
7. Digital Business Plan
Almost $800 million is being invested in a Digital Business Plan over 4 years from 2020-21 to help businesses grow by ‘going digital’. The funding will encourage businesses to adopt digital technologies, and includes dedicated dollars to:
• Accelerate the rollout of 5G, including an initiative to invest in 5G commercial trials and testbeds in key industry sectors such as agriculture, mining, logistics and manufacturing;
• Implementing the Modernising Business Registers (MBR) program, which will allow businesses to quickly view, update and maintain their business registry data in one location;
• Developing a digital identity system to facilitate more secure and convenient engagement with government services;
• Rolling out the Consumer Data Eight to the banking and energy sectors;
• Supporting small businesses to adopt digital technologies through expansion of the Australian Small Business Advisory Service (which includes their Digital Solutions program, Digital Readiness Assessment tool and Digital Directors training package);
• Connecting workers and SMEs to digital skills training.
8. Tax cuts hoped to boost spending
The Federal Budget is fast-tracking tax cuts, raising the 19% tax threshold from $37,000 to $45,000, and the 32.5% threshold from $90,000 to $120,000. The Low and Middle Income Tax Offset will remain in place for another year. As the tax cuts will be backdated to 1 July 2020, Budget estimates show that more than 7 million Australians will receive tax relief of $2,000 or more in the current year. Looking ahead with an update from treasury.gov.au
Australia remains one of only nine countries around the world to hold a AAA credit rating from all three major credit rating agencies. Despite a once in a century pandemic, which “wreaked havoc on the global economy and government balance sheets around the world”, Standard & Poor’s (S&P) has reaffirmed Australia’s AAA credit rating. In its report, S&P notes that the Federal Government’s “balance sheet was strong before the pandemic” and that “Australia’s budget improved in recent years on the back of tight fiscal discipline, strong labour market conditions, and high commodity prices.”
S&P further states that “Australia’s typically strong fiscal performance remains a credit strength for the rating” and that “Australia’s economy is beginning to recover from its first recession in almost 30 years” and will “rebound strongly once borders open”.
The economic support has been provided in a temporary, targeted and proportionate manner. By doing so the Government has protected the structural integrity of the Budget, with over 90 per cent of the spending committed in response to the crisis occurring over the next two years.
There is still a long way to go in recovering from this health and economic crisis, but the Australian economy is fighting back with around 60 per cent of the 1.3 million people who lost their job or were stood down on zero hours in April now back at work.
Next calendar year, the economy is forecast to grow by 4.25 per cent, and unemployment to fall to 6.5 per cent by the June Quarter 2022. Our economic and fiscal strategy sets out the path to grow the economy, stabilise debt, and then reduce it over time. Consumer confidence increased 11.9 per cent in October, the largest increase in a Budget month on record since the series began in 1974 with Westpac Chief Economist, Bill Evans, commenting that it was “an extraordinary result” and that “such a development must be attributable to the response to the October Federal Budget.”