As key leaders in the business machinery and equipment sector, we are particularly pleased for our customers with a number of initiatives announced in the 2021/22 Federal Budget. While many of the COVID-19 stimulus measures announced throughout 2020 and those implemented in the delayed 2020/21 Budget in October are still available for businesses, the 2021/22 Budget introduces new measures and expands existing programs.
While you may have picked up on the key announcements either in pre-budget announcements or in the post-budget media, we’re covering off on the gains for businesses that we see as specifically relating to equipment and machinery investment.
The Big Picture
As announced on 11 May by Federal Treasurer Josh Frydenberg, 2021/22 Federal Budget is focussing on repairing the economy rather than addressing the deficit and debt accumulated through the stimulus spending over the past year. The targets are clearly jobs and growth and a continuation of big-spending programs especially in key sectors such as aged care, the security of women in both physical and economic terms and infrastructure.
The Treasurer positioned the Budget as the next phase in the Government’s overall plan to extend and secure the gains already made in the recovery from the pandemic. The strategy includes personal income tax cuts; tax incentives for many businesses especially through investment; and creating jobs through training and apprenticeship programs. More info.
Unemployment and economic growth figures have both exceeded expectations and the goal is to drive unemployment down further from the current 5.8% figure. It is predicted to hit 5.5% in 2021 and 5% in 2022. This is key to the Government’s recovery plan but also a key indicator for the RBA in terms of moving on interest rates.
Currently, the RBA is holding rates at the low levels and is looking for unemployment to be possibly below 5% and for inflation to be in the vicinity of 2-3% before considering increasing the official cash rate. Should either of these targets be achieved ahead of forecasts, interest rates could be increased earlier than currently intended.
Before moving into the specifics of what’s in it for you, it’s worth noting that the budget needs to presented to and passed by the House of Representatives and the Senate before being able to be implemented. With many leading business groups approving of the measures, the Government would no doubt be hoping the Budget Bill passes relatively easily through both chambers.
Asset Acquisition Tax Measures
While many budget measures were announced prior to the actual speech, one of the big ones of particular interest to our Jade Equipment Finance customers which weren’t leaked is the extension to temporary full expensing.
Temporary full expensing was introduced in the October budget and is an expansion and an extension of IAWO. It was expanded to include more businesses and extended through to 2021/22. The new announcement further extends the timeframe through the 2022/23 financial year which enables those that need longer planning times to implement asset acquisitions.
For those not across temporary full expensing, it enables buyers of eligible new assets such as business equipment, plant and machinery to fully deduct the entire purchase price of the goods in the same year as the acquisition. The alternative being depreciating the asset incrementally over a much longer period.
The full depreciation is a tax deduction that reduces the business tax obligation and as such frees up business finance for other purposes. Investing in new equipment is seen as a way for businesses to grow and as the Government hopes, create new jobs to drive down unemployment.
The extension recognises that some businesses experienced supply and other disruptions due to COVID-19 and this allows them to participate in the initiative.
For businesses looking to utilise this measure, the selection of finance product should be carefully considered. Equipment Chattel Mortgage allows for depreciation of the equipment while with Equipment Leasing and Rental the equipment ownership is retained by the lender and the tax benefit realised in other ways.
Loss Carry Back
Another key business gain is the extension of the temporary loss carryback as introduced in October through another year. As with temporary full expensing, it was originally slated to expire on 30 June 2022 but will now be extended to 30 June 2023. Read more here.
This can be very effectively utilised in conjunction with temporary full expensing to deliver a significant tax benefit to a business. The benefit will depend on your business’ profit/loss result from earlier years so referring to your accountant is advised.
Cuts to Taxes
The LMIT (low middle-income tax offset) is extended for another year in a boost for personal income taxpayers in those categories. SMEs also get a tax reduction of 25% from 30% from 1 July.
Apprenticeships, Training and Wage Subsidies Schemes
To incentivise businesses to take on more staff, a number of schemes have been extended. These include the JobTrainer Fund extended to 31 December 2022 and the Boosting Apprenticeships Commencement scheme has been expanded.
Additional training places have been created in the care sector as part of the focus on aged care and participation of women in the workforce to be boosted with child care support. Wages subsidies are also available through job active.
For more information on the JobTrainer fund click here.
While we have focussed our budget coverage on the equipment acquisition aspects, there are many programs and opportunities for businesses to investigate. In our next article, we will take a look at some of the opportunities available for businesses to capture new work through Government spending programs.
While the budget still has to pass through Parliament and many of the initiatives are set for a 1 July start, IAWO and full expensing are available in this financial year. So you can still acquire equipment now and claim in this year, subject to meeting criteria. To move quickly on finance, contact us and one of our consultants will assist you.
Contact 1300 000 003 to discuss how we can assist you with your equipment acquisition plans.
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.