BridgePoint Group’s Neil Parker runs through the key points of the budget for Australia’s economic engine room.
The Government’s piggy bank has been well and truly cracked open as its Budget 2020-21 was announced by Treasurer Josh Frydenberg on Tuesday 6th October. In fact, it has been thoroughly emptied and then topped up with borrowings in an attempt to pull us through this recession as quickly as possible. This is possibly the most important budget in the post-war era.
The future of Australia’s economy has been pinned to record levels of Government spending and incentives with job creation and economic growth central themes. Debt is expected to soar to eye-watering levels (43.8% of GDP) into 2023-24. The COVID-19 Recovery Plan focus is jobs jobs jobs, with a $74 billion JobMaker plan a key feature, and then debt stabilisation and reduction.
For SME’s there is the ability to generate a refund against tax already paid. The Loss Carry Back means if a company has already paid tax referable to FY19 or subsequent years, losses made in FY20, FY21 or FY22 can be used to offset prior year profits, thereby creating a tax refund. There are specific criteria, so contact a tax expert to assist in compliance.
Budget papers suggest that taxpayers will need to wait until they lodge their 2021 tax return to apply the loss carry back provisions. That seems too late to me. Why it wouldn’t be available when you lodge the 2020 tax return is a mystery. Perhaps Government modelling suggests losses will show up later than that? But what of those who fell off the cliff in March this year?
“Normally, businesses would have to return to profit before they can use their losses, however, these are not normal times.” Noted Treasurer Josh Frydenburg.Research and Development Tax Incentives
Research and Development Tax Incentives
Research and Development Tax Incentives have received an additional $2 billion added to the program. This is a welcome turnaround from recent Government policy that was set to reduce the tax refund amount for SME’s.
The refundable tax offset is set at 18.5% above the claimant company’s tax rate. Last year this was 13.5%, so Government is seeing the benefit of Australian SME’s pouring money into developing new products, processes and services to help produce jobs.
BridgePoint Group’s R&D Tax Incentive expert Alan Baghdasarayan commented that “Make no mistake, Australia competes with the rest of the world in relation to attracting and/or retaining R&D spend. This is a welcome relief for Research and Development in Australia. It will help R&D to stay onshore, which will provide positive economic improvements for years to come.”
JobMaker Hiring Credit
Incentives for employers to hire young workers will grab headlines. The younger workforce (16-35-year-olds) who have borne the brunt of job losses during COVID-19, now have an incentive on their heads. JobMaker Hiring Credit provides a hiring credit of $200 per employee per week, for companies who hire 16-30-year-olds. If the hire is aged 30-35 years old, the credit is $100 per week. The credits apply for 12 months to 2022-23 and the new hires must work at least 20 hours per week. The Government expects this to generate 450,000 new positions creating an economic boost (my view is that number is rather optimistic – in the main, the jobs have to be there in the first place, they won’t suddenly come into existence because of a $10k contribution).
Coupled with JobMaker Hire Credits is $1.2 billion to see 100,000 new apprentices or trainees employed. Employers are eligible for $7,000 per quarter for a new or recommencing apprentice or trainee. This makes more sense when coupled with the $1.5 billion Modern Manufacturing Strategy and its National Manufacturing Initiative to support a range of manufacturing sectors within Australia. Nominated sectors include resources, medical products, food and beverage, recycling and clean energy, defence and space.
The intention here is to support Australian manufacturing. Massive tick from me on that. However, the success of this program will be its accessibility to a broad base of manufacturers. Too often, qualification criteria are too numerous meaning that only a few actually jump through all of the hoops and see any of the allocated budget money.
SMEs can now deduct the full cost of eligible depreciable assets, of any value, in the year they were installed. As well as the cost of asset improvements. Aimed directly at small businesses, the Treasurer hopes to create tens of thousands of jobs and deliver tax relief. It’s a “buy, sell, deliver, install and service” strategy. The Temporary Full Expensing measure will help small businesses get back on their feet, which can only benefit the economy.
If SMEs use this incentive wisely, they can really set themselves up to be competitive for the next decade. We would suggest don’t rush in. Sit back and really think about where you are headed. How this can be used to your enduring advantage? However, the cynic in me does expect to see a lot of new utes and Audi A4s hit the road.
There is a range of tax concessions included in Budget 2020-21, including the ability to deduct start-up expenses (from 1 July 2020), FBT exemption on car parking (this is good for those of us trying to help our teams return to work but avoid public transport) and work-related portable devices provided to employees (from 1 April 2021) (this is good for those of us who have people working from home) and from 1 July 2021 simplified determination of GST, PAYG instalments, excise on eligible goods and a two-year amendment period for eligible businesses.
As with any tax change, it’s important to give us a call for a full understanding of these taxation changes to ensure you get the full benefits and compliance.
Budget 2020-21 also contains region-based incentives (Victoria in particular) and mental health funding boost.
It is heartening to see manufacturing and apprenticeships as cornerstones of the economic strategy into the medium term. The onshoring of R&D, and other tax relief are all heading in the right direction.
So, what do we make of it all? Desperate times call for desperate measures. The fabric of our economy is under threat and if we want to continue to live life as we know it, bold measures are required.
This Government has recognised the key role that SMEs play in our economy. They want SMEs to survive and thrive and they want SMEs to be confident to hire and retain staff. The Govt is betting that business confidence will drive job growth, which will drive consumer confidence and spending.
History will be the judge of specific policy measures but we think they’re on the right track.