What the 2020 Budget means for asset finance brokers
Brent Starrenburg, Head of Connective Asset Finance
Over the past twelve months, asset finance brokers have supported their clients through very challenging times, from drought and bushfires to a global pandemic whose impacts are still being felt on Australian businesses. The great news is that the 2020 Federal Budget presents a number of opportunities in the area of asset finance – boosting the role that brokers can play in helping clients drive investment for recovery and growth.
The main drivers behind the budget are clear: the Government wants to get people back into jobs and help businesses grow so we can get the economy moving again. That’s a positive for both businesses and the asset finance brokers who support them, with the business investment incentives likely to trigger an increase in commercial lending.
Here are the key budget measures that might benefit you and your clients.
Instant asset write-off
One of the most significant announcements in the Budget is that businesses will be able write off the full value of any new assets they purchase, effective immediately. This will throw a lifeline to 99% of Australian businesses by giving them a tax incentive to invest in any new machinery, vehicles, technology or equipment they may need to set their business up for future growth. It’s available to all businesses with a turnover of less than $5 billion and will be available until 30 June 2022.
Businesses with up to $50 million in annual revenue will also be able to claim full deductions for the cost of improvements made to existing depreciable assets – while those with annual turnover between $50 million and $500 million will be able to claim a deduction for second-hand assets of up to $150,000 in value.
These are the largest set of incentives ever offered to Australian businesses. Hopefully it will provide your clients with greater certainty in planning their investments over the long term and allocating additional finances towards necessary upgrades.
Tax concessions for businesses
Under the new provisions, the Government will allow companies with turnover of less than $5 billion to carry back losses from FY20, FY21 and FY22 to offset previously taxed profits in FY19 or later years. This provides businesses with a refundable tax offset in this financial year or the next one. By allowing businesses to access their losses earlier, they’re able to generate a cash refund when they lodge their tax returns. This provides them with a cash flow boost which can then be directed towards investment into new assets.
What’s more, the Budget has expanded access to a range of existing tax concessions. By increasing the threshold from a turnover of $10 million to $50 million, many more businesses will become immediately eligible to claim certain tax deductions and exemptions. With these measures, the Government is creating a more favourable tax environment that promotes business investment and growth.
Funding for key industries
The Government has committed to inject $1.5 billion into the manufacturing sector over five years, spread across six key areas:
- Recycling and clean energy
- Food and beverages
- Resources technology
- Medicine and medical products
They also announced around $11 billion in infrastructure spending and measures to stimulate building in all states and territories. This should encourage businesses in key industries to invest in expanding their asset bases in order to support growth.
JobMaker Hiring Credit
The last important measure for your asset finance clients – and possibly your own business – is the JobMaker Hiring Credit. Aimed at getting younger people back into the workforce, JobMaker is giving businesses an incentive to hire people who are currently out of work and receiving support payments. This includes:
The Government will pay a hiring credit for up to 12 months for each new job created. It’s available from 7 October 2020 and will pay an employer $200 per week if the employee is between 16 and 29 years of age, and $100 per week if the employee is aged 30 to 35. The employee must work at least 20 hours per week in their new job. All Australian businesses are eligible, except for the major banks.
This measure should help business get their employee numbers back up to pre-pandemic levels, without having to shoulder the full salary costs themselves. It goes hand-in-hand with the other business investment incentives, because no business will be able to grow if they don’t have enough employees on board to support their growth strategy.
3 ways to make the most of new opportunities
Support existing clients. Determine how these initiatives can help your clients – and talk to them about leveraging new Budget measures to finance their growth. Do you have clients in the industries that are receiving cash injections? Have some of your clients put their growth strategies on hold because of the pandemic? It’s a good chance to build a healthy pipeline for your business. We’ve got some tips for how to do that in this article.
Strategically explore new segments. If you don’t have any clients in the industries that are receiving cash injections, this is a good opportunity to diversify your offering. Businesses in these industries may grow significantly over the next five years. Also keep in mind the businesses that have been thriving during the pandemic – such as healthcare, logistics and agriculture. We’ve listed some of them in this article.
Strengthen and grow your business. Think about how you can take advantage of these measures within your own business by reviewing your own team structure and asset base. Could you benefit from taking on more employees or upgrading your equipment?