Against the backdrop of a global pandemic and recession, the 2020/21 Federal Budget was seen as the most significant in decades if not in 100 years. The highly anticipated Budget Bill was presented to Parliament on 6 October by Treasurer Josh Frydenberg with the clear objectives of jobs creation through private sector driven initiatives.
Usually presented in May each so the programs and policies can be put in place by the start of the new financial year on 1 July, the Federal Budget was deferred to October. This decision was made back in March when coronavirus was only just starting to have an impact on the economy. The delayed date meant that the Government could better shape the budget to meet the economic conditions post-COVID rather than trying to anticipate, in April-May, what could or might be the scenario beyond July 2020 and into 2021.
Many of the budget measures were pre-empted in several pre-budget announcements and speeches by both the Treasurer and the Prime Minister, Scott Morrison. Both were clear in stating that they were looking at a business-led recovery and the budget includes many business supports but also the much-welcomed personal income tax cuts.
Usually the Budget Bill takes time to be passed through both Parliament, especially getting the Senate where the Government does not hold the balance of power. However, the opposition quickly acknowledged the importance of getting these measures, especially the tax cuts passed, and immediately signalled their agreement to pass the bill.
The Budget Bill was fast-tracked through the Senate by outgoing Finance Minister, Mathias Cormann and was passed on Friday 9 October. So the measures are, as the Prime Minister said, law.
We’ve reviewed the budget from our perspective at Jade Equipment Finance and our key areas of interest to provide our customers with this overview. As specific details on individual measures are released by the ATO and Treasury, we intend to further explore and expand on how we can assist businesses capitalise on the opportunities presented with business equipment financing.
The business support in the budget includes generic items which are relevant to all businesses, subject to eligibility criteria and more sector specific programs. In this article we’re focussing on the general measures.
Investment and Business Tax Opportunities
Of special relevance to our sector is the extension of the Instant Asset Write-Off (IAWO) scheme and the expanded Investment Allowance package. Most business operators will be across IAWO as it was introduced in March, has had the deadline extended from 30 June to 31 December 2020 and has been well-promoted to customers by ourselves and by lenders and equipment manufacturers.
The budget announcements in regard to investment allowances include:-
- IAWO in its current form, i.e. for businesses with $500m or less turnover and for eligible assets up to $150,000 is extended to 30 June 2021. The assets can be fully written off in this tax year if purchased and in operation by the deadline.
- For the same category of businesses, $500m or less turnover, second-hand assets are subject to temporary full-expensing
- Larger businesses (turnover up to $5 billion) get a temporary investment incentive with the deadline of 30 June 2022 to fully deduct eligible assets, in the relevant tax year, that are acquired and in operation in a business after 6 October 2021 (budget announcement) and 30 June 2022.
- Second-hand assets acquired by ‘$50m-$500m turnover’ category businesses by 31 December 2020 fall under the IAWO scheme and the tax benefit realised in the 20/21 tax year.
Equipment acquisitions across many industries will be fall under these schemes and the intention is that businesses will invest to expand and create jobs.
Wage Support Schemes
Wage support has been a key element of the Australian Government’s COVID-19 response and as the JobKeeper scheme winds down towards end of March 2021, the budget includes new wage subsidies.
For a limited time, 12 months, eligible businesses can receive $100-$200 per week towards wages for new employees in certain categories. Specifically younger employees and apprentices/trainees. The employees need to be newly hired and safeguards are flagged. Check the eligibility criteria at here.
Carry-Back Business Losses
Under the existing business tax rulings, if a business makes a loss in a tax year they can only ‘carry the losses’ forward. That is, claim them against profits in future years. But as it is foreseen that many businesses will face losses as a result of COVID-19 in 2019/20 and 2020/21, the budget allows for eligible businesses (turnover under $5b) to carry back those losses for a limited time.
Losses recorded for 19/20, 20/21 and 21/22 financial years can be offset against any profits that were recorded in the 2018/19 tax year and later years. So businesses don’t have to wait into the future to realise the tax benefits of losses and can realise a benefit to cash flow.
Realising the Budget Benefits
The investment allowances are of most relevance to us at Jade Equipment Finance. Our consultants are on hand to assist businesses with quotes on finance for new equipment acquisition so you can take full advantage of the tax benefits outlined in the budget.
The choice of the appropriate finance product is critical to being in a position to realise the depreciation tax benefits. With Chattel Mortgage the asset is on the business balance sheet and can be depreciated while leasing and rent to own are off balance sheet products. But other tax and financial benefits can be realised by off balance sheet finance and we recommend you discuss the selection of finance product with your accountant.
Look out for our future articles where we dissect and explainer the Federal Budget in greater detail.
To get started now on acquiring new assets contact Jade Equipment Finance on 1300 000 003 to discuss finance.
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