The world of pain being experienced by business owners has not yet been revealed anywhere near it’s true extent. Such is the resilience of people with capital at risk, and houses on the line, let alone their dreams. March certainly feels like a lifetime ago, but upon emerging from an intense period of focussing on survival, breaking points are being reached.
I don’t think anyone can fully appreciate what it feels like to take on the risks business owners choose to unless they’ve been there themselves. But I’m hopeful that those largely unaffected financially will notice the impact, sense what business owners are going through, and their employees who might have lost their job or had their income reduced. With a tinge of sadness, I keep thinking of my local café (now frequented more often due to mostly working from home). The tables and chairs are packed away, it now closes earlier, and I see only three out of the five employees I used to. I’ve been tipping about 100 per cent.
Having now had the chance to come up for air and survey the government’s efforts to assist businesses during this difficult period, how do the key measures stack up?
Let’s start with the increased instant deduction threshold for the cost of acquiring depreciable assets, from $30,000 to $150,000. The threshold will plummet back to the original $1,000 this 1 July. The intent is to incentivise businesses to invest, or to bring forward investment already intended. Do these kinds of investment allowances actually motivate small-to-medium business owners to buy significant items of equipment and machinery they otherwise wouldn’t? There is little evidence to suggest that they do, especially in an environment where the immediate concern is conserving cash.
We’ll accept whatever assistance is on offer, but let’s face it, the true motivator for investing in anything is the judgement that your business will earn a sufficient commercial return.
The up-to-$100,000 cash receipt, or reduction in your net BAS payment, is clearly better, because it’s based on money you were going to fork out anyway. For a business turning over $10 million per year, it amounts to about half a week’s revenue. That might not sound like much, but it’s much-needed cash in the bank, and we’ll accept it gratefully.
Although it’s “tax free”, it’s not, really. If you run your business through a company, it will simply be an untaxed retained profit, which can be extracted to you the owner only as an unfranked dividend. So, the government will eventually get up to 47% of it back from you. If you run your business through a discretionary or unit trust, you’ll eventually hand back somewhere along the 0%–47% spectrum.
Much has already been written and spoken about this program. Maintaining as many of your employees as possible during this short period of difficulty really means holding onto valuable knowledge, know-how and customer relationships that would otherwise be lost. The cost of having to rebuild all of that should not be underestimated.
Having said that, many business owners are encountering difficulties with securing bridging finance to pay employees, even when it is virtually assured that they will receive the JobKeeper payments from next month. The Treasurer last week gave the banks a bit of a boot, and they have responded by fast-tracking processes. Persist with your bank, as Friday, 8 May is the deadline to pay eligible employees the fortnightly minimum of $1,500 (before PAYG withholding) for the first two fortnights in the program (ended 12 and 26 April).
A number of measures are available to defer the payment of various tax obligations, or get quicker access to refunds. These are not automatic, but we can assist with obtaining for you the benefit of any applicable measures. It seems the ATO is largely accepting at face value your word that your business has actually been negatively impacted by COVID-19.
The ATO does not have a power to extend the due date for paying your employees’ superannuation, so there can’t be any concessions there.
The goal of these measures is to help small-to-medium businesses keep their employees employed, and encourage business investment. The direct cash receipts and deferral of tax payments will certainly help, whereas the effectiveness of nudging businesses to spend more, or sooner, is not so clear.
In any event, in the face to the economic difficulties caused by COVID-19, whatever assistance on offer is welcome. The key is to ensure that you maximise the benefit intended for you.
- David Montani, Nexia Australia National Tax Director
The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.