Globally, 2020 has been an extraordinary year. For much of the world, the impact of the COVID-19 pandemic has been catastrophic, causing one of the most severe economic crises since the Great Depression.

In Australia, enterprises—especially small and medium-sized businesses—have not escaped unscathed. Federal economic initiatives, such as the introduction of JobKeeper and household stimulus packages, have helped keep people employed and businesses operating, but it was always questionable how these solutions would fare in the longer term.

The 2020-21 Federal Budget, announced in October, offers a glimpse into Australia’s road to recovery. Economic initiatives were at the centre of the budget announcement, indicating that stimulus measures will continue to be a major theme for months, even years, ahead.

Let’s take a look at how these initiatives will affect small and medium businesses.

Reduction in Individual and Company Tax Rates

In this Budget, the Government is delivering an additional $17.8 billion in personal income tax relief to support the economic recovery, including an additional $12.5 billion over the next 12 months.

In 2020–21, low- and middle-income earners will receive tax relief of up to $2,745 for singles, and up to $5,490 for dual income families, compared with 2017–18 settings.

In addition, the company tax rate reduces from 27.5% to 26% for companies which are small business entities and are a base rate entity.  Which is the majority of small businesses.  This is effective for the year we are currently in, being the 2020/2021 tax year.

Instant Tax Deductions

Spending is being encouraged, with an immediate tax deduction for the cost of new assets from now until 30 June 2022.

This is great news for any businesses planning capital expenditure in the next 18 months. Note that this write-off only applies until 30 June 2021 for second-hand assets.

Loss Carry Back

Companies that have experienced losses will be able to recover some tax paid in prior years under the “loss carry back” scheme. Companies with a turnover of up to $5 billion can offset losses against previous profits on which tax has been paid to generate a refund.

Loss carry-back will be available to around 1 million companies, with losses incurred up to 2021-22 able to be carried back against profits made in or after 2018-19. This feature is only available to businesses trading via companies and will not apply to trusts or sole traders.

JobMaker and Wage Assistance

The budget highlights a focus on creating new jobs, rather than just protecting those in struggling sectors. 

The previously announced JobKeeper scheme will wind down, with the new JobMaker scheme essentially taking its place. For the next year, employers who take on a new worker who has been on JobSeeker or a related benefit will receive $200 per week for up to 12 months if the worker is aged 16 to 29 years, or $100 per week if the worker is aged 30 to 35 years.

There will also be a 50% wage subsidy available for new apprentices until 31 March 2021.

R&D refunds

Innovation is also being encouraged, with research and development (R&D) refunds available for smaller businesses. Companies with total annual turnovers of less than AU$20 million can claim a refundable R&D tax offset that is set at 18.5 percentage points above the company’s tax rate. 

Support for manufacturing and construction

The Government’s $1.5 billion Modern Manufacturing Strategy has been touted as a long-term plan to support Australia’s economic recovery. The newly announced $14 billion in new and accelerated infrastructure projects over the next four years will support some 40,000 jobs during their construction.

Likewise, an additional 10,000 places under the First Home Loan Deposit Scheme to support the purchase of a new home or newly built home has been designed to stimulate the construction sector. 

These schemes are designed to directly benefit businesses in the manufacturing and construction sectors, as well as those businesses that supply to these industries.

The road to recovery will be long

Make no doubt about it; there is no quick fix for Australia’s first official recession in 30 years.

The 2020-21 Federal Budget commits further response and recovery in Australia, bringing the Government’s overall support to $507 billion, including $257 billion in direct economic support.

With uncertainty still surrounding the continuing impact of COVID-19 on individuals and businesses alike, it remains to be seen whether the budget goes far enough to restore the economy to pre-pandemic levels.

For small and medium businesses, managing cash flow, capital expenditure, wages and benefit eligibility will be essential to stay afloat. Discover how your business can benefit from the latest budget announcements by contacting one of our financial advisors today.