'Tax breaks among incentives for businesses in Australia’s 2020-21 budget' Written by Partho Guha (Tax Manager, Accounting & Tax) and Roger Dubin (Manager, Accounting & Tax), TMF Australia
To help kickstart Australia’s economy and hopefully bring it out of its COVID-19 slump, the Morrison government has announced a budget that includes the following key incentives for private sector businesses. Businesses will be able to take advantage of measures including asset write-offs, loss carry backs and hiring credits.
Extension of instant asset write-off
Business with aggregated annual turnover of up to AUD $5 billion will be able to instantly write off eligible asset purchases without cost limit. This means they will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed.
The incentive is available for assets purchased from 7:30pm AEDT on 6 October 2020 until 30 June 2022. Eligible assets will be new depreciable assets and the cost of improvements to certain existing assets. For small and medium-sized businesses (with aggregated annual turnover of less than $50 million), full expensing also applies to second-hand assets.
Businesses with aggregated turnover between $50m and $500m can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.
Small businesses (with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies.
These measures are expected to incentivise investment in the full range of business assets including plant and equipment, furniture and fittings and motor vehicles and other transport equipment.
JobMaker hiring credit
The government also announced a capped, 12-month hiring credit or wage subsidy for businesses that hire ‘eligible’ employees. Broadly, these are young people aged between 16 and 35 who were previously (within three months of being hired) on the JobSeeker unemployment program, receiving youth allowance or a parenting payment.
Employers will receive $200 per week for new eligible employees aged between 16 and 29, and $100 per week for those aged between 30 and 35.
The subsidy is expected to be administered as a credit via Australia’s adoption of the Single Touch Payroll platform. It’s important to note that government agencies, sovereign entities (including wholly-owned foreign resident subsidiaries) and companies already taking part in the JobKeeper scheme are ineligible for this hiring credit.
Loss carry-back provisions
This budget measure will allow eligible companies to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years, to offset previously taxed profits in 2018-19 or later income years.
Corporate tax entities with an aggregated turnover of less than $5 billion will be eligible. The loss carry-back will generate a refundable tax offset in the year in which the loss is made.
The tax refund will be available for eligible businesses that elect for it when they lodge their 2020-21 and 2021-22 tax returns.
Research and development
The research and development (R&D) tax incentive is set to change from 1 July 2021. Small R&D entities will be entitled to an offset of 18.5 percentage points above their tax rate with no refundable limit. Large R&D entities will have intensity tiers reduced from three to two, with offsets of 8.5 and 16.5 percentage points above their tax rate.
The above highlights the key Australian budget announcements relevant to businesses, however there are other initiatives designed to further promote business investment and spending. These include apprentice wage subsidies and fringe benefits tax exemptions on employer-provided retraining and reskilling benefits for redundant – or soon to be redundant – employees.
This budget results in a record deficit for Australia and projects bullish forecasts for recovery over the next few years. It’s clear the announced initiatives, schemes and programs are aimed at increasing business spending and investment in the immediate term, with an expectation that these stimulatory measures will provide strong uplift to the Australian economy.
The combination of the instant deductions for asset purchases and the loss carry backs resulting in tax refunds can create significant cash flow benefits for businesses able to take advantage of these measures.
Overall, these measures should deliver greater economic growth, but the extent of the stimulus will depend on how confident businesses are about demand returning to the economy in the short-to-medium term. The government will no doubt hope that the broad-based individual income tax cuts also announced in the budget will help with this.
While this is a ‘business’ friendly budget, other community groups will no doubt be disappointed about the lack of focus on more ‘social’ based investments such as social housing. Assuming the bets made on business pay off, the nation as a whole should see dividends to all groups trickle down. However only time will tell.
It appears most of the key budget measures have bipartisan support and therefore should be enacted into legislation without significant change.
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