In response to the coronavirus pandemic, the Federal Government has instigated numerous support measures and recovery packages for business. Some of these supports are specific to individual sectors, some subject to eligibility, some are cash hand-outs that are automatically distributed and some require applications. Key to our specific area of interest, lending, some measures require businesses to invest through the acquisition of assets in order for a benefit to be realised. In addition to the Federal Government offers, individual states and territories have also introduced a range of initiatives to support businesses through the crisis. Staying across what is on offer, what action you need to take to ensure you receive your entitlements has been a major task throughout 2020. As Australia proceeds through, what hopefully will be the COVID-19 recovery and rebuilding phase, it is expected that even more initiatives will be rolled out. More info. The measures in the 2020/21 Federal Budget will be keenly watched. While many pre-budget announcements were made, the exact detail on many aspects needs to be finalised and the budget package passed as a bill by Parliament in order for the announcements to become a reality. Stay tuned! Staying across the announcements can be extremely worthwhile and very important. A number of measures that were introduced early in the pandemic have expiry dates and some of those are fast approaching. If you intended to make the most of what was on offer but haven’t as yet acted, then now could be your last chance for some offers.

Update on Key Deadlines

• Changes to the JobKeeper program came into effect at the end of September with further adjustments to the payment amounts and eligibility criteria due at the end of 2020 and at the end of March 2021. Businesses seeking to continue receiving this benefit need to re-apply by the deadline dates.
• The Instant Asset Write-Off (IAWO) has been extremely popular with businesses in a position to invest in new assets. It was announced early in the economic crisis caused by the pandemic, in March 2020 and the deadline then extended out from the original 30 June 2020 to 31 December 2020. This was introduced to stimulate the economy by incentivising businesses to purchase assets and receiving the benefit of being able to ‘write-off’ that asset in the current financial year. This is seen as a significant tax benefit as opposed to the usual process of depreciating an asset over time in line with ATO rulings. IAWO can be applied to a wide range of assets and many businesses are eligible. However, the assets must be purchased and by 31 December 2020, the asset must be operational within the business. Refer to ato.gov.au to check eligibility.
• An accelerated depreciation with a longer deadline than IAWO is BBI, the Business Backed Investment initiative also introduced early in 2020 by the Federal Government. This scheme applies to some businesses and some assets, it is not as general as IAWO. You are advised to check the ATO website for details. The measure may be utilised by businesses that record turnover of less than $500 million. The eligible assets need to be purchased, commissioned and in operation by 30 June 2021. So there is still some time to take advantage of this initiative with the acquisition of new plant, machinery, equipment or vehicles. (Subject to eligibility)
• Payroll tax is state-based taxation and all states and territories have announced payroll tax relief measures throughout the coronavirus pandemic. Refer to your state revenue office for details.

Business Finance Implications

If you have plans to realise the benefits of the Government’s accelerated depreciation measures – IAWO or BBI – then you need to closely consider the type of finance you take on for that purchase. In order for a company to realise the tax benefits of depreciating an asset, that asset must of course appear on the company’s balance sheet. That is not the case with all types of business finance. Both leasing and rent to own are off-balance sheet finance facilities. The asset, whether it be a business car loan, vehicle, truck, plant and machinery or equipment financing, is entered on the balance sheet of the lender, not the borrower. The borrower does receive tax benefits in regard to the deductibility of the monthly payments but does not depreciate the asset. In order to be eligible for IAWO, businesses need to utilise Chattel Mortgage for the purchase of the eligible assets. With this type of loan, the asset is purchased by the business and the lender takes a mortgage or security over the loan. So the asset appears on the borrower’s balance sheet. With Chattel Mortgage, the entire monthly loan repayment is not tax-deductible, only the interest portion is. But the business receives the tax benefit through the depreciation of the asset in accordance with ATO regulations. So if you want to take advantage of the IAWO scheme, you’ll need to act quickly and business finance to arrange a quote for a Chattel Mortgage loan for the eligible asset. Keep an eye on those announcements as there are sure to be more programs introduced over the coming months.

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