It cannot be emphasised strongly enough – small and medium sized businesses play a crucial role in the Australian economy.
Employing two in every three Australian workers, our SMEs are the reason we see new and diverse marketplaces. They give us a competitive edge within the global sphere – and research has shown that often the most innovative business people are found in this sector.
When we see strength in SMEs, we see strength in the economy, strength in employment figures and a high standard of living.
However, COVID19 has turned the world on its axis. It has created completely unprecedented challenges for business owners – as well as governments, who are scrambling to introduce reforms to mitigate the effects.
The Australian Government has recently released the 2020 Federal Budget and it includes a raft of measures designed to support a stronger economic recovery and bring more Australians back to work.
We have broken down the key elements of the 2020 budget for small and medium enterprises.
Expansion of instant asset write off
One of the more exciting items to come out of the 2020 Federal Budget for businesses, effective 6 October 2020, was the 100% instant asset write off of NEW asset purchases for businesses with turnover of less than $5bn (covering around 99% of businesses) – worth $26.7bn.
Businesses with turnover of up to $500 million can instantly write-off multiple assets worth up to $150,000 each. This applies to NEW and SECOND HAND asset purchases.
The aim of the policy is to encourage business investment.
Car limit – Please note that the deduction is only available up to the luxury car tax limit:
$57,581 for the 2019–20 income tax year; and
$59,136 for the 2020–21 income year.
There is no deduction or depreciation available for the cost of the car above this limit.
This is your opportunity to spend bigger on plant and equipment! But make sure improved product quality or efficiency justifies the purchase.
Also, think ahead regarding cash flow – beware of soaking up cash flow on long term assets. To be eligible for the Instant Asset Write-off or depreciation you must own the asset – not leasing it. We recommend you talk to your accountant regarding alternative ways of funding equipment purchases.
The Government’s JobMaker Plan has been touted as a key element of the Economic Recovery Plan for Australia. It is a weekly subsidy for each additional job created in a business from 7 October 2020 to 6 October 2021.
As an incentive, businesses who hire eligible young people will receive $200 a week if they hire a person aged 16 to 29 years, or $100 a week if they hire an eligible young person aged 30 to 35.
So now is the time to consider employment opportunities and options. If you’re able to take a young-ish person who has been on JobSeeker – now is the time! If you would like to learn more about your eligibility, get in touch. We can break down the scheme for you and explore your options.
Loss Carry Back
In an effort to help boost business cash flows, the Government will allow businesses with turnover of up to $5 billion to offset losses incurred up to 2022 against previous profits, made in or after the 2019 financial year.
Eligible companies may elect to receive a tax refund when they lodge their 2021 and 2022 tax returns.
But note that you must have enough franking credits to cover the tax refund!
Fringe Benefits Tax
Businesses will be exempt from paying the 47% FBT on retraining provided to employees who have been made redundant. (Or would soon be made redundant, so they can be given a new role in the business.)
These same businesses will be exempt from paying FBT on free car parking provided to employees in non-commercial car parks. An FBT exemption will also apply to businesses that provide phones, laptops and other work devices to employees.
These changes will commence on April 1, 2021.
Tax Concessions for SMEs
Some good news for those larger businesses! Some tax concessions currently available to small businesses with annual turnover up to $10 million have been extended to businesses with turnover up to $50 million.
These firms will have access to up to 10 small business tax concessions. This will include deductions of certain start-up and prepaid expenses, exemptions from the 47% FBT tax on car parking.
Other important 2020 Federal Budget measures
There have been other important initiatives in the 2020 federal budget. This includes changes to the R&D Tax incentive, with the government providing an additional $2 billion.
Under the new package, the proposed $4 million cap on annual cash refunds will not proceed, instead 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.
The Government is also extending and expanding the Supporting Apprentices and Trainees wage subsidy. It will include medium-sized businesses who had an apprentice in place on 1 July 2020.
Eligible employers can apply for a wage subsidy of 50 per cent of an eligible apprentice or trainee’s wages paid until 31 March 2021.
Another important one to note – the laws on Responsible Lending have been scrapped in an attempt to boost credit for SMEs. Hopefully this will make it a little easier to get finance when needed.
How does the 2020 Federal Budget effect you?
If you’re a business owner wanting to utilise these new measures to improve cash flow and give your business a boost – give us a call.
We can guide you through this process and ensure you can take advantage of the concession and incentives you are eligible for.
We are here to help business owners on this road to recovery.