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Federal Budget 2020: What it means for your business

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October the 6th, 2020 is a date that will resonate with business owners Australia wide. In the words of Treasurer Josh Frydenberg on the new budget: “It’s a game changer”. Positive Lending Solutions investigates and summarises the top wins for Aussie businesses - there are many.

Key ‘Game Changing’ Points:

  • Businesses are to receive almost twice as much in tax breaks as households.
  • Businesses with a turnover of up to $5 billion will be able to deduct the full cost of eligible assets in the first year of use or installation.
  • JobKeeper and JobSeeker’s sibling; ‘JobMaker’ announced.

Although the words 'calculated gamble’ come to some economists’ minds, the 2020 Federal Budget is aimed at a FAST businesses-led recovery. In other words, the federal government is hoping (and paying for) businesses to generate jobs and invest sooner rather than later.

As Josh Lawson, Positive Group CFO explains,

“With JobKeeper’s end in sight the Government needs to find another way to stimulate the economy. Business owners are set to benefit with the instant asset write-off initiative for businesses with revenue under $5 billion going hand-in-hand with the write back of losses to offset tax paid in prior years.”

Here’s how 2020’s budget can help businesses:

Deduct the full cost of an eligible asset.

Prior to the new budget, only a portion of an asset would have been tax deductible in the first year and the rest would have been depreciated over future years. Now, the full amount of an asset can be claimed as a tax deduction up front. This reduces the amount of tax a business will pay and gives the potential to offset prior year tax paid.

Additionally, businesses with a turnover of up to $500 million can instantly write-off multiple assets worth up to $150,000 each. They'll have an extra six months, until June 30 next year, to first use or install assets purchased by the end of this year. Assets include things like vehicles, heavy machinery and office equipment.

Put simply, a breakeven business purchases a car for $50,000. Under the new budget, that purchase of the new car will allow that business to receive $13,750 of tax payable (refund) paid in FY20 as a refund. They can use the car purchase to offset their amount of tax paid.

The message for businesses: Purchase new equipment and expand while it’s cheap to do so.

Loss carry back.

Companies with a turnover of up to $5 billion will receive a refund of taxes paid on prior year profits if they post a loss. This means that if a business incurs a taxable loss, it may be able to be offset against prior year taxable profit and subsequent tax paid.

Put more simply, eligible businesses can claim a refundable tax offset up to the amount of their previous income tax liabilities.

The message for businesses: Check in with your accountant! If you have incurred taxable losses in FY20 / FY21 / FY22, you may be able to offset prior years’ tax paid and receive a refund.

JobMaker.

Taking advantage of this scheme, employers will receive a credit for each new job they create for unemployed people aged between 16 and 35 years old. This subsidy is $200 per week for 16-to-29-year-olds, and $100 for 30-to-35-year-olds. It’s available until October, 2021. To receive the subsidy, businesses must prove that it’s a new job by increasing their number of staff. In other words, they can’t dismiss older employees and replace them.

The message for businesses: Get hiring. Expand your staff headcount by employing young Australians.

R&D tax cuts reversed.

The research and development tax incentive was, prior to the new budget, destined for the scrap heap. Now, instead of cutting $1.8b from the R&D tax incentive, another $2b has been added to the program.

The refundable R&D tax offset rate for companies with an aggregated turnover of less than $20m is now 43.5%. Depending on circumstances, this could mean that for every $1 spent on eligible R&D costs, 43.5 cents can be claimed.

The message for businesses: Research ways to develop your business!

Overall, the new budget’s message is loud and clear: Spend now, hire now and recover now. The message is expected to be heard by Australian businesses. Now is the time to get that new fleet of vehicles, upgrade the factory or expand operations.

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