The federal government has just announced one of the most anticipated budgets in history outlining its plans to help the country rebuild post-COVID. Here’s a breakdown of what’s included for Aussie SMEs.
A number of significant business tax and stimulus measures were announced in the 2020/21 budget, many of which will mean big changes and opportunities for Aussie businesses.
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 the official Treasury media releases page).
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 significantly overhauled – though for a limited time only.
From (AEST) 7pm on 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.
For many enterprises, funding capital expenditure usually calls for an injection of asset finance. The challenge for SMEs that have struggled through COVID is that their financials may not pass muster with traditional lenders.
As a fintech lender, OnDeck Australia uses sophisticated data analytics to determine loan approvals. And already, OnDeck has seen a 35% jump in SME loan applications between August and September.
OnDeck CEO Cameron Poolman comments, “We know cashflow is critical for SMEs to navigate the road to recovery, and the increase in our loan approvals suggests many small businesses hold a positive outlook for the future and are already taking proactive steps to rebuild and expand.”
Carry-back business losses
Under the new loss carry-back measures, 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.
Cameron Poolman says, “This is a good incentive for business owners to speak with their tax adviser and complete tax returns as soon as possible. It can mean accessing much-needed cash to take advantage of other Budget measures including capital spending and new hiring.”
JobMaker – $200 weekly subsidy for new hires
Following hot on the heels of JobKeeper and JobSeeker comes the new 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.
Treasurer Josh Frydenberg stated that all Australian businesses other than the major banks will be eligible.
Apprentices and trainees wage subsidy
The budget has also pledged an investment of $1.2 billion to support the hiring of 100,000 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.
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%.
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.
Victoria’s business support grants
The Victorian government’s SME support grants announced on 13 September 2020 will be non-assessable, non-exempt (NANE) income for tax purposes. This applies to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.
The arrangement can be extended to other states and territories on an application basis.
The government took steps to deliver on this promise by introducing legislation into Parliament in mid-November. The Treasury Laws Amendment (2020 Measures No. 5) Bill 2020 memorandum clarifies that only entities with an aggregated turnover of less than $50 million will be eligible for the concessional tax treatment.
Moreover, the payment must be made under a grant program that is declared by the minister to be eligible and is, in effect, responding to the economic impacts of the coronavirus.
The program must also be directed at supporting businesses subject to certain restrictions regarding their operations, including being subject to a public health directive that applies to the geographical area in which they operate.
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.
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.
What’s missing from the Budget
In the lead up to Budget night, accounting and small business bodies united in calls for a Small Business Viability Review program, which would include a $5,000 subsidy to help small businesses access professional business planning.
While forecasts predicted that 500,000 small businesses would gladly have taken advantage of the subsidy, it wasn’t included as part of the Budget.
According to Cameron Poolman, advance planning is just as critical to success of a business as effective day-to-day management. He says, “Our research highlights that even in normal times, SMEs can face many disruptions. Planning ahead for peaks and troughs – particularly in regards to cashflow, is critical for long term success.
“In the absence of a formal subsidy I encourage SME owners to invest some time drafting their own business plan. Seek the advice of your accountant if necessary. But in the middle of a 1-in-100 year pandemic, having a bespoke roadmap to recovery creates certainty, builds confidence, and leaves a lot less to chance.”
Get in touch today to find out about funding options to help finance your business planning which may be available to you.
Read more about the 2020-21 State Budgets announced after the Federal Budget
Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at 6 October 2020. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.