Despite the significant coronavirus stimulus packages announced throughout 2020 and many of the measures delivered for business in the delayed 2020/21 October Budget still available, the 2021/22 Federal Budget still attracted much attention from the business community. Although a number of the measures in the Budget were pre-empted with the traditional pre-budget ‘leaks’ by the Treasurer, Prime Minister and other relevant Ministers, there was still plenty of ‘reveals’ in the official bringing down speech.
To assist businesses grappling with the big numbers and to cut through to what your business may gain from the Federal Budget we have summarised the key points from our Business Finance perspective.
The Treasurer, Josh Frydenberg, clearly stated prior to his Budget speech on 11 May, that this would not be an austerity budget to address the debt accumulated as a result of the stimulus measures. He said it would be a budget to repair the economy with a continuation of spending but with a more targeted approach.
The Budget is essentially designed to cover the 2021/22 financial year but some spending is spread over multiple years so reading the fine print is essential. Note should also be taken of the timing of some policies. While announced in this budget, some may, such as the child care support, do not come into effect until 2022.
In general terms, the Australian economy is performing better than forecast late last year. While it was expected unemployment could be in the 8%+ range, it is at 5.6% and falling each month. Growth is also exceeding predictions though some sectors such as tourism and aviation are still struggling due to international travel restrictions.
The announcement by the Treasurer that international borders won’t open until mid-2022 will be a blow to tourism operators and the tertiary education industry but targeted support is included in the Budget. The closed borders are also placing pressure in some job markets such as hospitality, leisure and agriculture with many businesses not able to fully trade due to understaffing issues.
But the spending in many sectors represents significant work opportunities for many businesses and the continuation of the investment tax benefits can be realised by all businesses.
Asset Acquisition Tax Benefits
Of particular interest to us in the lending, the sector is the continuation of temporary full expensing for another year. To recap, Instant Asset Write-Off is an accelerated asset depreciation measure that was introduced as part of the initial COVID-19 business stimulus package in April 2020. This allows eligible businesses to write off as in depreciating or realise a tax deduction for the full purchase price of eligible assets in the year of acquisition rather than in small increments over multiple years. More information.
In the October budget, this measure was essentially replaced with temporary full expensing. This is the same accelerated asset depreciation concept but was expanded to include more businesses and assets. The measure was put in place through to 2021/22 financial but the 2021/22 Budget has that timeframe extended to 2022/23.
This allows for supply chain issues which some businesses have been experienced in accessing equipment and machinery and also allows operators that need a longer timeframe to plan major asset acquisition to realise the benefits.
In order to take advantage of temporary full expensing, businesses need to acquire the relevant assets – cars, motor vehicles, trucks, machinery, plant or equipment – with a finance product that enables the asset to be depreciated. That finance product is Chattel Mortgage for Businesses. Our most widely-used loan product and the one that attracts the lowest interest rate.
The Loss Carry Back accounting measure has also been extended through to 2022/23. We will cover off how this measure can work effectively with accelerated asset depreciation to deliver benefits to the business in a future article.
Opportunities by Industry
In addition to the benefits to be realised by the investment measures, many businesses stand to realise increased work opportunities through a raft of Government spending in key sectors.
- Infrastructure spending once again is significant in the Budget and continues to be used by governments to stimulate the economy. Construction, earthmoving, civil works and associated businesses and suppliers stand to benefit from a raft of projects announced through all states and territories.
- Home Builder scheme received a mention which could be good news for traders struggling to meet deadlines with material supply issues.
- In the wake of the Royal Commission on Aged Care, the aged care and health sectors both receive significant spending.
- Manufacturing, processing, waste and recycling continue to benefit from the 10 years Modern Manufacturing Strategy.
- Small brewers and distillers have a big win with excise tax cuts.
- An interesting inclusion is for the digital gaming industry which receives a 30% tax offset.
- Businesses that focus on innovation and research will be interested in exploring the possibilities in the Patent Box. This measure is introduced to encourage R&D and keep the patents in Australia through reduced taxes.
- The agriculture sector receives attention with an $850 million injection to assist farmers to attain their goals in farm gate output increases. Read more here.
- Aviation and tourism receive targeted support packages.
- Education gets a boost with funding for pre-schools, higher education and tertiary institutions.
Opportunities also present to business to grow via the wage subsidy schemes for apprenticeships and trainees.
Clearly, there is a lot more detail to digest and place in context with your individual business and you can read the full Budget Papers at www.budget.gov.au or discuss your finance options with one of our Business Finance consultants.
The Long View
The asset investment measures are very much welcomed by Business Finance as they represent great opportunities for our customers to invest in new assets. Further enhancing these measures is the current low-interest-rate environment. When sourcing finance for our customers, we arrange deals at fixed interest rates over the full loan term. So locking in a deal at our current low rates will enable businesses to plan cash flow over the full term, even if rates do increase in the next year or two. To compare banks and lenders, use our online business finance interest rates chart.
In relation to interest rates, the Federal Budget does not address this aspect as it is the role of the RBA to set rates. However, eyes will be on the unemployment and growth figures as the RBA is targeting sub-5% unemployment and 2-3% inflation as their triggers to lift rates.
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