WRAPPING UP GOVERNMENT INCENTIVES: INVESTMENT FOR BUSINESS

The 2020-21 financial year wraps up shortly at the end of June, and with it goes some of the critical stimulus incentives introduced by the federal government to assist businesses during the economic downturn of COVID-19. If you have been thinking about upgrading equipment, expanding the fleet, or saying goodbye to transport hire with a new vehicle purchase, now is an excellent time to consider taking the plunge while incentives are still available. Below, we bring you a quick refresh of important business investment measures—the instant asset write-off, temporary expensing and loss carry-back, the Backing Business Investment and the Coronavirus SME Guarantee and Recovery Loan schemes.

Temporary full expensing — now extended until 30 June 2023

First, let’s get to some of the best news for business to come out of the 2021-22 Budget announcement: the Federal Government has extended temporary full expensing on eligible assets for another year. The extension now applies to eligible assets purchased between 6 October 2020 to 30 June 2023. This allows business with up to $5 billion in turnover to deduct the business portion of the cost of new eligible assets, with no dollar limit on the asset’s worth (meaning assets over $150,000 can be fully expensed). For eligibility criteria and more information on temporary full expensing from the ATO, click here. For a detailed breakdown of how this measure could be applied to a new truck purchase, see our truck buying information sheet here.

Temporary loss carry-back – now extended until 30 June 2023

Alongside temporary full expensing, the government also announced a further 12-month extension to the temporary loss carry-back measure to include the 2022-23 tax year. Temporary loss carry-back allows businesses with turnover up to $5 billion to offset operating losses against previous profits on which tax has already been paid. This will now apply to losses incurred during the 2019-20, 2020-21, 2021-22 and/or 2022-23 tax years. Eligible companies can elect to receive a tax refund when they lodge 2020-21, 2021- 22 and 2022-23 tax returns. The measure is aimed at companies operating at a loss due to COVID-19 and can assist in boosting cash flow, retaining workers and encourage businesses to take advantage of full expensing while it is available. For a visual breakdown of how this measure could affect your business, see our video with tax expert Haydn Stewart here. For an ATO summary on the temporary loss carry-back measure, click here.

Instant asset write-off — ends 30 June 2021

Last year, the Federal Government increased the instant asset write-off (IAWO) threshold, raising it to $150,000. Access to the write-off was also expanded to include businesses with an aggregated annual turnover of less than $500 million (up from $50 million). This applies from 12 March 2020 until 30 June 2021, for new or second‑hand assets first used or installed ready for use in this timeframe. Eligible assets include capital equipment, such as trucks and cars. Assets not eligible under the increased IAWO scheme can be found here. For a tax expert’s take on how you can use the instant asset write-off, see our interview with Haydn Stewart, the Executive Director of Trident Financial Group.

Backing Business Investment — ends 30 June 2021

Another government tax relief scheme for businesses is the Backing Business Investment (BBI) initiative. This accelerates depreciation deductions and is a time-limited, 15-month investment incentive to support business investment and economic growth over the short term. This applies to eligible assets acquired from 12 March 2020 and first used or installed by 30 June 2021. The BBI is available to businesses with a turnover of less than $500 million. Under the BBI scheme, eligible businesses will be able to deduct 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost. The BBI scheme is different from the IAWO in a number of ways, especially regarding eligibility of businesses and assets. Under the measures, different rules apply depending on whether or not an entity is using the simplified rules for capital allowances for small businesses. More information on BBI can be found on the ATO website here.

Coronavirus SME Guarantee Scheme — ends 30 June 2021

To support credit flow in the Australia economy, and in particular for small and medium enterprises (SMEs), the government put in place the Coronavirus SME Guarantee Scheme. This sees the Federal Government, Reserve Bank of Australia and the Australian Prudential Regulation Authority working together to extend loans to businesses with a turnover of up to $50 million. Phase 1 of the scheme commenced in early April 2020 and was available for new loans made by participating lenders. This ceased on 30 September 2020. The scheme has now been extended, with Phase 2 of the scheme applicable between 1 October 2020 and 30 June 2021. Under Phase 2 of the scheme, the government will provide a guarantee of 50 per cent to lenders for new unsecured loans to be used for working capital. This will result in SMEs being able to access additional funding to help support them through the upcoming months. For more information on this and where to apply, check out the Treasury website here.

Building on the SME Guarantee Scheme...

The government also announced an extension to the Small and Medium Enterprise (SME) Recovery Loan Scheme, allowing eligible SMEs to access additional funding or refinance existing loans at a lower interest rate. Here are some important points on the scheme:

• It’s only open to SMEs with a turnover of up to $250 million that were recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021 or were affected by floods in eligible LGAs in March 2021.
• Businesses that accessed loans in Phase 1 or Phase 2 of the Coronavirus SME Guarantee Scheme can apply for loans under this scheme.
• Borrowers can access up to $5 million in total, in addition to Phase 1 and Phase 2 loan limits.
• The government guarantee will be 80 per cent of the loan amount.
• Loans can be either unsecured or secured (excluding residential property).

For a full list of features and eligibility requirements, visit this Treasury website.

Wrapping it up

Investing in new equipment can be a daunting process for anyone, especially if you are a small or medium-sized business owner. You can find support resources on the ATO website, or check out our blog with tax expert Haydn Stewart for practical information on these measures. In such an unprecedented time, uncertainties abound not just for businesses, but particularly for individuals and families. There is additional government financial assistance available for vulnerable individuals and households, and you can have a look at those here. Want to read more about stimulus measures for employment? Check out our blog on this here.