On 6 October 2020, the Treasurer Josh Frydenberg delivered the much anticipated Federal Budget for 2020-2021. The historic Budget laid down the roadmap for Australia’s recovery following COVID-19. For businesses, the good news is that the Budget introduced significant incentives to support and stimulate their recovery and growth. Here, we’ll discuss some of the key features for the 2020 budget and what they mean for businesses.
Asset write-off
From 6 October 2020 until 30 June 2022, businesses with a turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed from their tax.
This means that a vast majority of business owners in Australia can immediately write off the full value of depreciable assets from their taxes. The asset would need to be first used or installed before 30 June 2022 to qualify for the tax deduction. This can include new computer hardware, office fit-outs, vehicles and manufacturing equipment, as well as the cost of improving existing assets. Only certain assets cannot be written-off, such as horticultural plants and assets in a software development pool.
Additionally, businesses with a turnover between $50 million and $500 million will be able to write-off the cost of second-hand assets up to $150,000 in value, as long as the business uses or installs the assets before 30 June 2022.
For small businesses with a turnover of less than $50 million, they may write off all second-hand assets with no cap on their value.
This will allow businesses to invest more in their business infrastructure.
Small Business Tax Exemptions
More businesses will also be able to access small business tax concessions. This is because the Budget increases the small business entity turnover threshold from $10 million to $50 million.
The government will roll out these concessions in three phases:
- From 1 July 2020, new eligible businesses can instantly deduct start-up expenses and other prepaid expenditure. These include fees for professional, legal and accounting advice.
- From 1 April 2021, eligible businesses can also claim fringe benefit tax exemptions. These include mobile phone, laptop and car parking expenses incurred on behalf of employees.
- From 1 July 2021, eligible businesses will be able to access a range of streamlined processes. These include simplified trading stock rules and remittance of pay as go instalments on GDP adjusted notional tax. Furthermore, a simplified accounting method determination for GST purposes will apply to businesses below the $50 million aggregated annual turnover threshold.
This means that transaction costs are reduced and that it’ll be easier for new businesses to get started.
Carry back losses
Businesses with a turnover of up to $5 billion will be able to claim back taxes paid on profits made in the 2018-19 financial year or later to offset losses made in financial years between 2019 and 2022.
This will create a tax refund, which the business will receive when it lodges its 2020-21 and 2021-22 tax returns. This aims to support businesses that were making profits but are now suffering losses due to COVID-19.
This will increase businesses’ cash flow, allowing them to remain afloat and invest more in their business.
Jobmaker Hiring Credits
The Budget also provides an incentive for eligible employers to hire young job seekers in the form of the JobMaker Hiring Credit. From 7 October 2020, employers who hire eligible employees between the ages of 16 to 29 will receive $200 per week, and $100 per week for those between the ages of 30 to 35. The maximum claim period is 12 months from the date they are employed.
Businesses can take advantage of this incentive to hire young employees and save employment costs.
Research & Development Tax Incentive
The Budget also introduces changes to the Research & Development (R&D) Tax Incentive, which provides a tax offset for eligible companies engaging in R&D activities. R&D activities are experimental activities that business or other entities conduct for the purpose of generating new knowledge, the outcome of which cannot be determined on the basis of current knowledge.
From 1 July 2021, the government will increase the tax offset rate for R&D Tax Incentive. For businesses with $20 million or more turnover, the rate increase to 16.5 percentage points above the company tax rate, depending on the intensity of the R&D expenditure. For these businesses, the tax-offset will be non-refundable.
Regarding businesses with a turnover below $20 million, the R&D tax incentive will increase to 18.5 percentage points above the company tax rate, on a refundable basis. This means that such businesses will receive a cash refund if they are in a tax loss position after the R&D tax offset.
This will encourage businesses to invest in generating new knowledge and technologies, propelling economic development.
Grant winners
The government will also be pouring money into certain sectors.
This includes the $1.5 billion Modern Manufacturing Strategy package. This includes $107.2 million funding to supply chain resilience and $1.3 billion modern manufacturing initiatives. The government has also set aside funding packages for recycling infrastructure ($250 million) and water infrastructure and agriculture ($2 billion). Additionally, the government is investing in female leaders ($240.4 million), universities ($1 billion) and regional Australia ($550 million) (such as by boosting the regional tourism sector).
If your business is in these sectors, you can expect support and growth in the future.
Conclusion
Amidst an economic recession brought about by COVID-19, the 2020 Budget was anticipated to pave the way for post-COVID economic recovery – and the government has sought to do just that. The 2020 Budget introduces some incentives to help businesses get back on their feet and flourish. Make sure you understand the Budget’s key features so you can take advantage of these incentives and plan ahead.
