The budget released on Tuesday represents an injection of “rocket fuel” into the investment opportunities for all Australian business. The combination of focussed taxation incentives, grant funding, wage subsidies, and regulatory relief provides a clear signal to business to invest over the next 2-year period.
For processing businesses that are looking to grow the following summary considers some of the key budget items and how they relate to scaling and investment opportunities.
Outright deduction of capital assets until 30 June 2022 for most businesses
- Businesses with an aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from budget night provided they are first used or installed by 30 June 2022
- This will apply to both the purchase of new assets and/or the cost of improvements to existing assets
- Importantly there is no limit to the size of capital asset investment which previously had been limited at $150,000
- The impact of this change is to significantly improve the payback period of capital improvements and improves their financial return.
- As an example, if a food processing business were to invest $5million in new freezer and warehousing facility under the “normal” ATO taxation treatment they would receive a tax deduction spread over a 20-year assumed useful life. At most the business would receive a Year 1 deduction of $500,000 and a tax benefit of $150,000. Provided they were to start and complete the project by 30 June 2022 however the business will receive an immediate tax deduction of $5,000,000 and a tax benefit of $1.5 million in its first year!!
Loss carry-back from 2019-20, 2020-2021, and 2021-2022 income years
- Businesses will further be allowed to carry back tax losses incurred during the 2020, 2021, and 2022 tax years in the period from 2019 and onwards
- When combined with the outright deduction provision above this provides a real opportunity for businesses to reclaim tax previously paid to fund current investment
- For example, taking the example above, where the business made a taxable loss due to it’s $5m investment it would be possible to regain tax paid in the prior year
- This retrospective carry-back provides further improvement to the payback period of capital improvements and improves their financial returns.
Jobmaker Hiring Credit
- Where businesses are looking to scale a further incentive has been provided to eligible employers to obtain wage subsidies for eligible new employees
- These subsidies are aimed at improving the employment outcomes for employees below 35 years old and equate to either $100 to $200 per week depending upon the age of the employee
- To be eligible the employer must not have previously claimed the Jobkeeper scheme and new employees must be genuine additions to the organisation’s headcount after 30 September 2020
- The scheme is capped to $10,400 per employee and will run for 1 year for each employee
- For businesses, this represents a great scaling opportunity to complement the capital incentives.
Targeted Grant Funding
- Beyond the changes to taxation policy and labour subsidies, the Government has also announced further grant programs specifically aimed at the manufacturing, resource and agribusiness sectors
- The Modern Manufacturing Strategy will see $1.5 billion invested in Australian manufacturing over five years from 2020-21
- The program targets six National Manufacturing Priorities, identified as either areas of competitive strength or strategic national priority.
- Importantly these include 1. Resources Technology and Critical Minerals Processing 2. Food & Beverage 3. Medical Products 4. Recycling & Clean Energy 5. Defence 6. Space.>> Check out our blog on this.
- Information regarding these programs will be progressively released however they will provide grant funding to eligible businesses on a co-investment basis. Based upon previous schemes this could mean a 50% reduction in the cost of eligible projects to the investing business.
The above represent only a few of the budget items released and the Government is to be commended for putting business at the forefront of the economic recovery efforts. Further coverage of the other budget items will be performed in later blogs.