The 2020-21 budget has expired, but what does it mean for companies? Here we explain how this historic budget affects business owners.
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On October 6, 2020, Treasurer Josh Frydenberg submitted the eagerly awaited federal budget for 2020-2021. The historic budget set the roadmap for Australia’s recovery from COVID-19. For businesses, the good news is that the budget has put in place significant incentives to support and stimulate their recovery and growth. Here we will discuss some of the key features of the 2020 budget and what they mean for businesses.
Depreciation of assets
From October 6, 2020 to June 30, 2022, companies with revenues up to $ 5 billion can deduct the full cost of eligible depreciable assets of any value in the year they are installed from their taxes.
This means that a large majority of business owners in Australia can immediately write off the full value of depreciable assets from their taxes. The asset would need to be used or installed for the first time before June 30, 2022 to qualify for tax withholding. This can include new computer hardware, office equipment, vehicles and manufacturing equipment, and the cost of upgrading existing assets. Only certain assets cannot be depreciated, e.g. B. Horticultural crops and assets in a software development pool.
In addition, companies with revenues between $ 50 million and $ 500 million can write off the cost of used assets up to $ 150,000 in value, provided the company uses or installs the assets before June 30, 2022.
For small businesses with sales less than $ 50 million, they can write off all used assets with no cap on their value.
This allows companies to invest more in their business infrastructure.
Small business tax exemptions
More businesses will also have access to small business tax breaks. This is because the budget increases the small business revenue threshold from $ 10 million to $ 50 million.
The government will introduce these concessions in three phases:
- Starting July 1, 2020, new eligible businesses will be able to deduct startup costs and other prepaid expenses immediately. This includes fees for professional, legal and accounting advice.
- From April 1, 2021, eligible companies can also apply for tax exemptions for fringe benefits. This includes cell phones, laptops, and parking costs that are incurred on behalf of employees.
- Starting July 1, 2021, eligible companies will have access to a range of streamlined processes. This includes simplified rules for trading stocks and transferring reimbursement installments to the GDP-adjusted notional tax. In addition, a simplified calculation of the accounting method for GST purposes applies to companies below the aggregated annual sales threshold of USD 50 million.
This means that transaction costs are reduced and it is easier for new companies to get started.
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Carrying back losses
Companies with revenue of up to $ 5 billion can reclaim taxes paid on profits made in fiscal years 2018-19 or later to offset losses incurred in fiscal years between 2019 and 2022.
This creates a tax refund that the company will receive when filing their tax returns for 2020-21 and 2021-22. The aim is to help companies that made profits but are now suffering losses due to COVID-19.
This increases the companies’ cash flow and allows them to stay afloat and invest more in their business.
Jobmaker is hiring credits
The budget also provides an incentive for eligible employers to hire young job seekers through the JobMaker recruitment loan. Effective October 7, 2020, employers hiring eligible employees 16-29 years old will receive $ 200 per week and $ 100 per week for employers 30-35 years old. The maximum entitlement period is 12 months from the date of your employment.
Companies can use this incentive to hire young people and save on employment costs.
Research and development tax incentive
The budget will also introduce changes to the Research and Development (R&D) tax incentive, which provides tax offset to eligible companies engaged in R&D activities. R&D activities are experimental activities that companies or other companies carry out in order to generate new knowledge, the outcome of which cannot be determined on the basis of current knowledge.
Starting July 1, 2021, the government will increase the tax equalization rate for R&D tax incentives. For companies with sales of $ 20 million or more, the tax rate rises to 16.5 percentage points above the corporate tax rate, depending on the intensity of R&D spending. Tax equalization is not reimbursed for these companies.
For companies with sales less than $ 20 million, the tax incentive for research and development increases to 18.5 percentage points above the corporate tax rate. This means that such companies will receive a cash refund if they find themselves in a tax loss position after the R&D tax adjustment.
This will encourage companies to invest in generating new knowledge and technologies and to drive economic development.
The government will also put money into certain sectors.
This includes the $ 1.5 billion Modern Manufacturing Strategy package. That includes $ 107.2 million for supply chain resilience and $ 1.3 billion for modern manufacturing initiatives. The government has also provided funding packages for recycling infrastructure ($ 250 million) and water and agriculture ($ 2 billion). The government is also investing in female leaders ($ 240.4 million), universities ($ 1 billion) and regional Australia ($ 550 million) (e.g. by strengthening the regional tourism sector).
If your company operates in these sectors, you can expect support and growth in the future.
Amid a COVID-19-triggered economic recession, the 2020 budget should pave the way for post-COVID economic recovery – and the government has tried just that. The 2020 budget introduces some incentives to help businesses get back on their feet and thrive. Make sure you understand the key features of the budget so that you can take advantage of these incentives and plan ahead.