Analysis: budget implications for SMEs

Analysis: budget implications for SMEs

It’s one thing to see what measures are in the budget, but quite another to explore the implications for SMEs and the broader economy. My Business asks business, accounting and tax leaders to analyse what the real impacts will be for Australia’s business owners.

Immediate asset write-off extension

“We would like to see this become a permanent fixture though as well as the threshold increased, to incorporate more standard small business investments.”

The announcement that the $20,000 instant asset write-off would be extended for another year was universally welcomed, as was the decision to expand the availability to SMEs by raising the required turnover threshold from $2 million to $10 million.

“This … will provide an immediate deduction and hence a lower tax bill to a broader range of businesses,” says Ross Watson, principal of SMB at national tax and advisory firm RSM Australia.

“For equipment vendors that have a cost of less than $20,000, they may experience a lift in sales or at least be able to maintain existing sales levels.”

Agreeing to the point was Andrew Conway, CEO of the Institute of Public Accountants, who said cancelling the measure would have hit SMEs hard.

“If the decision had been to revert the limit to $1,000, it would have been a huge disincentive for many small businesses.

“The increase in the accelerated depreciation write-off threshold to $20,000 has been of great assistance to small business cash flow.

“Small businesses Australia-wide should be very pleased with this outcome; it brings an injection of economic growth, giving small businesses the confidence to buy new equipment, reinvest in their operations and grow.”Businessman examining papers with a magnifying glass

Adam Joy, CEO of the Australian Lottery and Newsagents Association (ALNA) – which represents more than 4,000 independent businesses selling official lottery tickets – was one of many people calling for the measure to be made permanent.

“Cash flow is essential for our members, as many are investing in new shop fit components to renew their retail offerings right now,” he says.

“We applaud the government’s extension of the $20,000 instant asset write-off for another year, which will support this investment. We would like to see this become a permanent fixture though as well as the threshold increased, to incorporate more standard small business investments like delivery vans.”

It was a view echoed by MYOB CEO Tim Reed.

“Making the $20,000 instant tax write-off permanent for new assets is a key priority for SMEs,” he says.

“A recent MYOB SME Snapshot survey found 60 per cent of SMEs considered it to be the most pressing need for small business in this budget.

“It encourages business growth and is exactly the type of measure that delivers confidence to the business community.”

Meanwhile the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, suggested it was not the duration of the measure but the dollar amount that could be revised to benefit more businesses and industries.

“We would have liked a lift in the $20,000 threshold for the instant asset write-off, because for some industries, like farming, the $20,000 threshold is too low to enable them to purchase equipment,” she says.

 

Company tax and payroll tax

“Australia’s high company tax rate, and state and territory payroll tax rates, are evidently massive inhibitors to small business growth.”

Any reduction in business tax is a welcome one, and this year’s budget reinforced the commitment made last year to lower Australia’s company tax rate.

“Tax concessions for businesses in the lower bands of turnover ($2 to $3 million) are where you will see the entrepreneurial levers kicking into action fastest. Tax relief for these smaller businesses will give maximum innovation and job creation impact in the short term,” says Michael Judge, head of corporate clients at foreign exchange provider OFX.

However, as many industry leaders such as Reckon CEO Clive Rabie point out, the current levels of cuts don’t go far enough to keep Australian businesses competitive with their global counterparts.

“The recent moves to reduce the company tax rate for small businesses to 27.5 per cent is positive, however there is more work to do when comparable nations like the UK have a rate of 19 per cent, and the US is looking to move to 15 per cent,” he says.

“Australia’s high company tax rate, and state and territory payroll tax rates, are evidently massive inhibitors to small business growth. Any tax relief that can be delivered to small businesses is welcome, as it means they can spend more on productivity-enhancing technology and machinery, and create more jobs which drives economic activity.

“Further reforms are necessary to promote small business growth and ensure we remain competitive on the global stage.” 


CGT changes

“This will lead to confusion by small business operators as to what concessions they have access to.”

Business owners will have to be more careful than ever when declaring assets for CGT concessions, following changes to eligibility requirements.

“The government announced the small business CGT concession will be tightened to deny eligibility for assets which are unrelated to the small business,” says RSM Australia’s Mr Watson.

“The budget papers cite as an example arrangements where ownership interests in larger businesses do not count towards the test for determining eligibility for the concession.”

However, he criticised the blurring of the lines when it comes to the government’s definition of what constitutes a small business.

“While the definition of small business for many measures has been lifted for those with an aggregated turnover of less than $10 million, the government has left the turnover threshold for the small business CGT concessions at less than $2 million,” he explains.

“This will lead to confusion by small business operators as to what concessions they have access to.”


Skills and training funding

“The more employees are better skilled and trained, the more we will have a positive impact on B2B and retail growth.”

Given the debate and confusion among business owners that was sparked by the abolition of 457 temporary foreign worker visas last month, the SME community was eagerly looking to the budget for investment in training and education in areas facing acute skills shortages.

Australian $100 bills“We hope another issue for our members, of funding practical competency-based training and skills gaps, will be addressed by the four-year, $1.5 billion announced to establish the new Commonwealth-State Skilling Australians Fund,” said Mr Joy of the ALNA.

“This will focus on training workers in new skills and the more employees are better skilled and trained, the more we will have a positive impact on B2B and retail growth for our members.”

While welcoming the needs-based approach to school funding, ACS – the professional association for the ICT sector – says the budget failed to go far enough to address key skills shortages.

“At a time when the performance of Australian students in science and maths is declining, the ACS supports a stronger focus on building digital skills and digital literacy in Australian classrooms. This must be a critical economic and policy priority, especially when STEM is associated with 75 per cent of the fastest growing occupations, innovations and wage premiums,” its president Anthony Wong says.

Aside from funding for education and training, MYOB’s Mr Reed expressed concern about the decision to add a new levy on businesses hiring foreign workers.

“We are concerned about the extra compliance costs forced on small businesses in the courier and cleaning industries [for example],” he says.

“We understand they are measures introduced to try to reduce the black economy, but they will end up increasing the burden on all business owners in these industries – something that will increase costs and slow growth.”


No GST changes

“It was a missed opportunity to discuss the GST more broadly against other taxes.”

The government was criticised for not using the budget as a means of leveraging the GST, as a means of scrapping some of the less efficient and much loathed state taxes.

“Last week, Chartered Accountants Australia and New Zealand called on Treasurer Scott Morrison to use the budget as a platform to open the GST debate and eliminate inefficient state taxes,” says Reckon’s Mr Rabie.

“It was a missed opportunity to discuss the GST more broadly against other taxes.”

“As shown by a recent Reckon survey to over 1,200 small businesses, more than 9 in 10 (92 per cent) of respondents believe it's important for the federal and state governments to work more closely together to deliver payroll tax relief.”

He adds: “Something as basic and fundamental as hiring staff to keep your operations running shouldn't present such a burden for business owners.”


Infrastructure spending

“Real spend on infrastructure delivery will fall.”

Businesses associated with infrastructure development were among those to applaud the government’s funding commitments to a number of major infrastructure projects. However Megan Motto, chief executive of built environment body Consult Australia, said there was scope to go even further.

“Over $14 billion of direct government equity in major infrastructure delivery and financing agencies. Major projects like Snowy Hydro, Inland Rail, a National Rail Program, and Western Sydney Airport, all point to a government that understands the long-term nature of infrastructure projects,” she says.

“Yet in the short term there is a sense of missed opportunity. Historically low bond rates and a triple-A credit rating mean it has never been a better time to borrow, to take on more good debt. Yet as a share of GDP, spending will drop from 25.5 per cent to 25.2 per cent in 2020-21.

“Real spend on infrastructure delivery will fall.”

She adds: “This is an Infrastructure budget 1.0 that begs for an infrastructure budget 2.0 to better connect the strong sense of direction to implementation and the opportunity for Australia to maintain future economic growth.”


Prohibition on sales suppression technology and software

“It is not known how this prohibition will be implemented.”

This little-known measure was included in a bid to counteract the cash economy and tax avoidance.

“Sales suppression technology and software allow businesses to understate their incomes by untraceably deleting selected transactions from electronic records in POS equipment. Income earned from these transactions and tax owing from this income is not reported to the Australian Tax Office (ATO),” explains RSM Australia’s Mr Watson.

However, he expressed doubts at the effectiveness of such a move.

“It is not known how this prohibition will be implemented, or if it will overcome those who are determined not to report certain cash transactions.”

Yet Mr Rabie from Reckon says that any move to control the black economy represents a step to make the playing field more level for responsible business owners.

“The ABS estimates that the black economy could be as large as 1.5 per cent of Australian GDP or around $24 billion dollars, which is significant. Small and medium businesses that engage in black economy activities such as ‘cash only’ for illegitimate reasons are getting an unfair advantage as they can undercut other businesses doing the right thing and who are paying their fair share of taxes,” he says.

“It is positive to see the government provide an additional $32 million in funding to the ATO to better target black economy risks on businesses with a turnover up to $15 million as this will help level the playing field for all small businesses.”

 

Analysis: budget implications for SMEs
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