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Federal Budget 2020-21: What does it mean for your Business?

Nov 9, 2020 | Accounting & Tax, Budget 2020-21, Coronavirus, News

The 2020-21 Budget including Temporary Full Expensing and Loss Carry Back, has set the scene for the slow climb to economic recovery by bringing it back to the basics.

Legislation from the Federal Budget has been passed for:

  • The Tax-loss provisions
  • JobMaker Program

This is in addition to the existing programs for:

  • Instant Asset Write Off
  • Up to 50% of wages for Apprentices and Trainees to be paid for.

Previously we covered off on how the Budget has effected individuals, so now it’s time to take a look into some of the incentives that are available for business.

To assist you we have summarised and recapped on the programs as an update for businesses on how to capitalise on the opportunities.

Temporary Full Expensing

temporary full expensing - instant asset write offOur previous news article, which can be found here discusses the Instant Asset Write Off / Temporary Full Expensing for businesses with turnover up to $5 billion, which means:

  • The ability to deduct the full cost of eligible depreciable assets of any value in the year they are installed.
  • Costs of improvements to existing eligible depreciable assets made during this period can also be fully deducted.

For more details please check out our factsheet.

 

Loss Carry-Back

Loss Carry back Tax budget 2020The Federal Government has brought in new Loss Carry-Back provisions, allowing companies with annual turnover up to $5 billion to offset losses against previous profits on which tax has been paid, to generate a refund.

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. Allowing them to access their losses earlier will provide a much-needed cash flow boost to their businesses, keeping them running, retaining their workers and investing with confidence into the future.

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FY 2019-2020

FY 2020-2021

FY 2021-2022

Must be a company that has an annual turnover up to $5 billion

 

 If a tax loss is made it can be offset from previously taxed profits from FY 2018-2019 but cannot be claimed until lodgement of FY 2020-2021 returns. A tax loss in this financial year can be offset from previously taxed profits from FY 2018-2019 or 2019-2020. If a tax loss is made it can be offset from previously taxed profits from FY 2018-2019, 2019-2020 or 2020-2021.
Currently, companies are required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

This means that currently, non-corporate entities are not eligible for this tax offset. The government has been pushed to revise the eligibility criteria as many small business owners do not use a corporate structure to run their business. We will provide an update if the criteria are amended.

 

How to use the Budget to boost cash flow and help your business?

  • Bob the Builders Pty Ltd has an aggregated annual turnover of $50 million for the 2021–22 income year.
  • On 1 July 2021, Bob the Builders Pty Ltd purchases a truck-mounted concrete pump for $1 million, exclusive of GST.
  • The company’s taxable income for 2021–22 was $600,000 before the purchase.
Without Temporary Full Expensing,

Bob the Builders Pty Ltd would claim a tax deduction of around $300,000,

resulting in a taxable profit of $300,000,

 


and a tax bill of $90,000.

 

Under Temporary Full Expensing,

Bob the Builders Pty Ltd will instead deduct the full cost of the asset of $1 million,

resulting in a tax loss of $400,000.

Under temporary Loss Carry-Back, Bob the Builders Pty Ltd offsets this tax loss against profits in 2018–19,

resulting in a tax refund of $120,000.

Without the refund, the company may have had to defer the investment until their cash flow position recovered, or may not have purchased the new pump at all.

 

JobMaker Hiring Credit

The Government has also announced a new wage credit for up to $200 a week per employee if a business hires a young person aged 16 to 35 years old who is currently receiving JobSeeker payments. The JobMaker Hiring Credit is a key part of the Government’s JobMaker Plan to boost Australia’s economic recovery.

We will be releasing more information on this initiative shortly.

 

Keep updated here on all things Budget related.

Date Published: November 09, 2020 | Last Modified: November 9, 2020