What the Budget means for small to medium businesses

October 7, 2020

The 2020 Federal Budget announcement is being hailed as the most important budget since World War II. 

In the face of an unprecedented global pandemic, stimulatory spending will reach never before seen levels.

The Federal Government is hoping to stimulate both the economy and consumer confidence with a spending package designed to promote confidence in the private sector. 

The two most important measures for business owners are the expansion of the instant asset write off program and a new initiative that will allow businesses to claim back losses on tax already paid to June 2022. Treasurer Josh Frydenberg said that these measures were the largest set of incentives ever offered. 

Instant Asset Write Off

  • The Government has expanded instant asset write-offs to businesses with turnover of up to $5 billion until June 30, 2022. This covers all businesses bar the top 1%.
  • From 7:30pm (AEDT) on 6 October 2020 until 30 June 2022, businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed. The cost of improvements to existing eligible depreciable assets made during this period can also be fully deducted.
  • Fact Sheet

Carry-back losses

  • In a measure predicted by Mark Bouris, SME’s will be allowed to carry back losses incurred to June 30, 2022, against previous profits on which tax has been paid, to generate a refund.
  • The Federal Treasury said: “Loss carry-back will be available to around 1 million companies that employ up to 8.8 million workers. Losses incurred up to 2021‑22 can be carried back against profits made in or after 2018‑19. Eligible companies may elect to receive a tax refund when they lodge their 2020‑21 and 2021‑22 tax returns.”

JobMaker

  • ‘JobMaker’ is the latest government initiative to compliment the JobKeeper and JobSeeker measures. JobMaker is a hiring credit to encourage business owners to employ young workers. Paid for one year at $200 a week for new hires under the age of 30, and at $100 a week for those aged 30 – 35, the Hiring Credit is estimated to support approximately 450,000 young people from 2020-21 to 2022-23. 
  • Fact Sheet

Jobs, jobs, jobs for apprentices and trainees

  • The government is continuing to target Australia’s skilled workforce, helping eligible businesses retain apprentices and trainees by offering a 50 per cent wage subsidy.
  • Two sets of categories exist:
    1. Eligibility – from 1 January 2020 to 30 September 2020 – support for small business

      • Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage paid during the 9 months from 1 January 2020 to 30 September 2020, up to a cap of $7,000 per quarter. 
      • Available to support small businesses with fewer than 20 employees, who retain an apprentice or trainee, or who re-engage an eligible out of trade apprentice or trainee. 
      • The apprentice or trainee must have been in an Australian Apprenticeship with a small business as at March 1, 2020. 
    2. Eligibility – from 1 July 2020 to 31 March 2021 – support for small and medium business

      • From 1 July 2020, the subsidy will be available to support small and medium businesses with fewer than 200 employees, who retain an Australian Apprentice engaged as at 1 July 2020, or who re-engage an eligible out of trade apprentice or trainee.
      • Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage paid during the 9 months from 1 July 2020 to 31 March 2021, up to a cap of $7,000 per quarter.

Mark Bouris’ Analysis

During his budget announcement speech, Josh Frydenberg said that Covid-19 had turned “fundamentally sound businesses into loss-making businesses” so “In order to keep their workers, these businesses need our help now,” the treasurer said. “They cannot wait years for the tax system to catch up.”

“In a modern economy, workers and businesses need to adapt. So should our tax system.”

Mark Bouris said that not only does our tax system need to adapt, but our “entire economy policy” with it:

“We need initiatives outside the norm. We need policy that’s never been seen before. No budget has ever ticked all the boxes for everyone, and it’s doubtful any budget ever will, so let’s focus on the task at hand: getting businesses cash, incentivising the private sector to employ, and bolstering consumer sentiment.”

“This budget, mercifully, avoids all the fear-mongering and alarmist bullshit we’ve seen from all sectors of politics and media recently. Don’t let net debt figures scare you or meaningless debates about who said what or when.”

“The truth is, no budget before or likely after will compare to this. During the GFC, global economic downturn was 0.1%. This year it’s predicted to be 4.5%. There’s no simple comparison here. We need spending on a scale we haven’t seen and we’ve got it. We need to wait and see how these measures are implemented, but as far as I’m concerned, we’re seeing real leadership and initiative right now. It’s a step in the right direction, let’s hope it stays that way.”

Don’t forget the measures introduced already

Earlier in the year the government announced some wide ranging measures to stimulate Australian businesses and incentivise spending, that are not to be forgotten. 

Ensuring cash flow to pay bills and wages

The Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme is supporting up to $40 billion of lending to SMEs (including sole traders and not-for-profits) by guaranteeing 50 per cent of new loans issued by participating lenders to SMEs. 

Under the Coronavirus SME Guarantee Scheme, the Government will provide a guarantee of 50% to SME lenders for short term unsecured loans taken out by SME’s. The government is supporting $40 billion of lending, by enhancing lenders’ ability to provide credit to businesses. 

Phase 1 of the scheme provided SMEs access to unsecured working capital loans. Elements of the scheme:

  • From 23 March 2020 – closed 30 September 2020. 
  • SMEs, including sole traders, with a turnover of up to $50 million.
  • Maximum total size of loans of $250,000 per borrower.
  • Loans will be up to three years, with an initial six month repayment holiday.
  • Unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.
  • Responsible lending criteria no longer applies
  • Looking at last year’s business activity, not previous months.

The Government has extended the Scheme making targeted amendments to the Scheme’s parameters to update the policy with necessary changes. 

Phase 2 of the Scheme will continue to support lenders’ ability to provide credit and ensure that SMEs benefit from lower interest rates. Elements of the scheme:

  • Commenced on 1 October 2020, available for loans made until 30 June 2021.
  • Borrowers can access up to $1 million in total.
  • Loans are for terms of up to 5 years, and a repayment holiday is not required but can be offered at the discretion of the lender.
  • Loans can be either unsecured or secured (excluding residential property).
  • The interest rate on loans will be determined by lenders, but will be capped at around 10 per cent, with some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time.

Ensuring cash flow to pay bills and wages

If your small or medium-sized business employs staff and has an aggregated annual turnover under $50 million, you may be eligible for two sets of cash flow boosts up to $100,000.

The Federal Treasury says, “These payments are designed to help keep your business operating, pay rent, electricity and other bills and retain staff.”

“The first boost will flow from 28 April 2020 and the second for the periods June to September will be delivered in instalments depending on reporting periods.”

“Eligible employers who withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 100 per cent of the amount withheld, up to a maximum payment of $50,000.”

“Eligible employers who pay salary and wages will receive a minimum payment of $10,000, even if they are not required to withhold tax.”