The Federal Budget was handed down on April 2, 2019. As always, the Budget is a plan rather than a prediction: what comes to pass will depend on who wins the upcoming election and whether they can get their changes through Parliament. Nonetheless, while businesses shouldn’t rely on the Budget as set in stone, it does provide some insight into the business landscape for 2019-20.
Here are the main points of interest for businesses, most of which apply whether you’re a small to medium business or a larger organisation.
Tax cuts brought forward
In the previous Budget, the government proposed tax cuts for small and medium businesses to come into effect in 2026-27. Now those cuts have been brought forward and expanded to include businesses with turnover below $50 million.
Under this Budget, the corporate tax rate for companies under $50 million will drop from 27.5% in the 2019-20 financial year to 26% in 2020-21, and then 25% in 2021-22. The government estimates that the change will affect almost a million companies employing around 5.2 million people.
Instant asset write-off raised to $30,000
In 2017, the government introduced the ability to deduct the full cost of a business asset costing $20,000 or less for businesses with an annual turnover of $10 million or less. The amount was then increased in January to $25,000. Historically, anything costing over $1000 had to be depreciated, so the measure was a significant change.
In the current Budget, they’ve gone even further and increased both the amount and the number of businesses eligible. Now, all businesses with an annual turnover of $50 million or less can instantly write off business assets worth up to $30,000.
It expects about 22,000 additional businesses to be eligible, with more than 350,000 companies already taking advantage of the existing write-off. It is estimated that the changes will cost the Budget $400 million over four years.
Significantly, the change was passed by Parliament on April 4 and took effect on April 6, so if you’re a business falling under this category, take note.
Personal tax cuts
The masthead in this year’s Budget hasn’t been corporate tax cuts but personal tax cuts. Estimated to be worth $158 billion over the next decade, the plan doubles the tax offset and flattens tax brackets. In the short term, people earning less than $126,000 per annum will see up to $1080 extra in their next tax return.
While these are personal tax cuts, for small to medium businesses, they might be the most significant change of all because sole traders’ business income is taxed at their personal tax rate.
In addition, tax cuts free up disposable income and, hopefully, encourage discretionary spending. That’s good news for businesses, who may experience a boost in cash flow as a result.
People at the start of their career, plus anyone looking to take on extra staff in certain industries, stand to benefit from the boost to apprenticeships. Incentive payments to take on apprentices will be doubled for a range of fields, from hairdressing and plumbing to carpentry and baking.
On top of an existing $4,000 employer incentive, employers will receive an additional $4,000 over a two-year apprenticeship. Apprentices themselves will also receive $2,000 - half after 12 months and the balance at the end of two years.
The Budget also plans to institute 10 "training hubs" across Australia, aimed at addressing local skills shortages in various industries and targeting youth unemployment in regional areas.
As the current Budget is both subject to the outcome of the federal election on May 18 and dependent on the government’s ability to pass its components in Parliament, it remains to be seen how much of it will come to pass. However, it’s worth getting financial advice about any aspect that you think may affect your business so that you’re well positioned to take advantage of it when and if it does.
Looking for more information on the Federal Budget? Visit the Australian Government Budget website for the latest updates.
This article was written by Tanya Ashworth-Keppel on behalf of the Australian Institute of Business. All opinions are that of the writer and do not necessarily reflect the opinion of AIB. Information has been sourced from the Federal Budget 2019-20.