There's cash up for grabs for small businesses but does it go far enough?
Faced with an economy battered by lockdowns and border closures, the federal government delivered a big-spending Budget, with plenty of the cash splash pitched at small businesses.
The government has flipped open its cheque book with a program of spending that will see the nation's net debt increase to 36% of GDP this year, rising to 54% of GDP by June 2024. But for small to medium enterprises, the Budget delivers much-needed financial support.
Here's what's up for grabs for your small business.
Carry-back business losses
A key Budget platform is a new loss carry-back scheme, allowing businesses to offset losses incurred to June 2022 against prior profits made in or after the 2018-19 financial year. If your business is eligible, the tax refund will be available when you lodge your 2020-21 and 2021-22 business tax returns.
Loss carry-backs are already in place in a number of other countries.
"The government's announcement to allow businesses to restructure their tax liabilities through a temporary loss carry-back to help smooth profits and losses and minimise potential tax debts is essential, especially where businesses are worried about tax debts tipping them over the edge," says Diane Tate, chief executive of the Australian Finance Industry Association.
Tony Kabrovski, director of the family business specialist Harrington Advisory, agrees that the carry-back initiative is a positive measure.
"It provides SMEs that were profitable pre-COVID-19 with a reasonable chance for recovery, partly funding the creation of new jobs on the presumption of an optimistic mindset of SME owners.
"SMEs are encouraged to complete their tax returns in a timely manner to access the loss carry-back provisions to provide funds for new jobs and capital expenditure."
JobMaker: $200 a week for new hires
The government that brought us JobKeeper and JobSeeker has now unveiled JobMaker. It lets businesses claim a hiring credit for up to 12 months when they take on new employees currently relying on JobSeeker.
JobMaker will be paid quarterly in arrears at the rate of $200 a week for each new employee aged under 30, and $100 weekly for new employees aged 30-35. New hires must work for at least 20 hours a week to be eligible.
While JobMaker is great news for businesses looking to expand their teams (and under-35s relying on a dwindling level of JobSeeker support), it does overlook older Australians. That's a shame because workers aged over 35 often bring valuable experience to a small business, yet they can find it challenging to re-enter the workforce.
The government will also introduce a new 50% wage subsidy for businesses that take on new apprentices between October 5, 2020, and September 30, 2021. The subsidy will be capped at $7000 per quarter for gross wages for new apprentices and trainees.
Tax cuts to encourage spending
While JobMaker is expected to support 450,000 new jobs, Anne Nalder, chief executive of the Small Business Association of Australia (SBAA), isn't convinced that these types of subsidies are effective.
She points out there are 2.2 million actively trading small businesses in Australia. If each one took on just one extra employee regardless of age, we would have zero unemployment.
"But businesses will only take on more staff if their sales improve, so businesses need more customers," she says.
Presumably this is where the Budget's fast-tracked personal tax cuts come in. Treasurer Josh Frydenberg estimates more than seven million Australians will receive tax relief of $2000 or more this year. However, Nalder says the tax cuts for individuals are welcome "but I am unsure if those amounts will encourage spending".
Figures from the Australian Bureau of Statistics (ABS) suggest she could be right. Household spending fell 2.6% in the 2019-20 financial year, the first annual fall in recorded history. On the flipside, the household saving ratio has soared to 19.8%, the highest since June 1974.
Amid the uncertainty of a pandemic, it's a fair bet many consumers will shunt tax cuts straight into savings accounts rather than injecting the cash into the economy. This puts the onus back on businesses to deliver deals that encourage households to dip into their hip pockets.
Turbo-charged asset write-off
The $150,000 instant asset write-off slated to end on December 31, 2020, has been radically supersized. Businesses with turnover up to $5 billion can claim an immediate writedown until June 30, 2022, for the value of any eligible asset bought for the business.
On one hand, this is a chance for small businesses to invest in new equipment to boost productivity or expand into new product lines or markets. However, as Kabrovski explains, there is a catch.
"The challenge with this continued initiative is that SMEs need funds or access to borrowed funds to buy business assets," he says.
"Changes to the responsible lending laws for small businesses are encouraging. However, how likely is an SME to be approved finance if the most recent financials are showing losses?"
The solution can be to think outside the square. A number of fintech lenders use advanced data analytics to determine loan approvals, and already-online SME lender OnDeck Australia has reported a 35% uptick in loan applications between August and September.
"We know that trading conditions for SMEs have been hugely disrupted by the COVID-19 pandemic. But our 35% jump in loan applications suggests that SMEs are taking positive steps towards recovery," says Cameron Poolman, chief executive of OnDeck Australia.
Support for newcomers
More Australians will get the chance to become their own boss or strengthen their small business through an expanded New Business Assistance with the New Enterprise Incentive Scheme (NEIS) program.
The changes will allow people in part-time work or study to access assistance to launch a venture of their own. NEIS will also be expanded to help existing micro-business owners who may have been affected by COVID-19 and need assistance to adapt their business and keep it running. NEIS provides personalised training and mentoring plus the NEIS Allowance for up to 39 weeks, which is equal to the Newstart Allowance rate for a single person aged 22 or over with no children.
What the Budget doesn't do
While the Budget delivered a grab bag of goodies for the business sector, it failed to address a number of pressing issues.
Kabrovski says that trading stock, wages and rent are typically among the highest expenses a business can face.
The Budget addresses some employment-related matters through JobMaker, but he says "it is silent on rentals when the government announced earlier this year a moratorium on landlords evicting tenants".
Calls for a Small Business Viability Review program were also overlooked. Accounting bodies and the Australian Small Business and Family Enterprise Ombudsman had proposed a $5000 subsidy for small businesses to access a tailored 15-month business planning program to help owners decide how to turn around their business - or exit altogether.
No such review or subsidy was included in the Budget despite modelling that suggested 500,000 small businesses would take up the subsidy.
"OnDeck's research shows cash flow is critical to the health of small businesses, and even without a subsidy it is good business practice for enterprises to map out their cash flow," says OnDeck's Cameron Poolman. "It allows operators to understand when shortfalls will occur and plan ahead accordingly."
Despite the shortfalls, the Budget brings plenty to the table for small businesses. If it can also help to lift consumer confidence, the SME sector may be well placed to plan ahead for a recovery.
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