Whatever your plans were at the start of this year, 2020 had other ideas - and Government is no exception. Having confidently forecasted a surplus of $6 billion just under a year ago, the Federal Budget has now announced a projected cash deficit of $213 billion for 2020-21.
This Budget focuses less on getting the nation back to surplus, instead prioritising helping businesses recover from the impact of the COVID-19 pandemic. We all know that the hospitality industry has been among the hardest hit, so what's in the Federal Budget for us?
Well, there are at least four major initiatives in the Federal Budget that will give a much-needed boost to cafes, restaurants and the full range of hospitality businesses. Read on to find out more.
Temporary full expensing
The Budget announces a temporary tax incentive which expands on the existing instant asset write-off for businesses. A capital asset is an asset used in a business to generate revenue over the course of more than one year. Recorded as an asset on the balance sheet, they are expensed over the useful life of the asset through depreciation. For cafes and restaurants, this could include everything from refrigeration to furniture.
So, what's changed in the new Federal Budget?
- For business with a turnover of less than $5 billion (so, most food service businesses), you can now access an immediate tax deduction for the full cost of eligible depreciable capital assets acquired and installed until 30 June 2022. The cost of improvements to an existing eligible depreciating asset can also be fully deducted. This also applies to second-hand equipment for businesses with up to $50 million in annual revenue.
- The existing instant asset write-off scheme enables businesses with $50 million to $500 million in annual revenue to claim a full deduction for second-hand assets of up to $150,000 in value, if purchased by December 31, 2020.
This means that when you purchase commercial kitchen equipment (or any other equipment) for your café or restaurant, you will be eligible for a tax deduction in the same year. You can borrow to fund the purchase (for example, by leasing the equipment) - meaning you don’t have to use your own cash reserves and you can still claim the write off. You will need to talk to a professional tax advisor to get relevant advice for your circumstances, but here's an example of how it could work...
How it could work in practice
A coffee roasting company has financed the acquisition of a new roastery plant. They have upgraded some of their machinery and have bought new roasters and testing equipment. The total cost of all the equipment is $300,000 and it was installed in the 2020/21 financial year. The company has a current tax rate of 26%. For the 2021 financial year the company will be eligible to write off the entire $300,000 against their income meaning an immediate saving in taxation of $78,000.
What the experts say
Canio Muscillo, Director at MURO Accountants said, 'This new initiative, if legislated, will provide certainty that investment in business assets will provide immediate and definite tax benefits. This now puts plant and equipment items on the same pecking order as wages and cost of goods sold, as immediately tax deductible against the income of your business in the year that you've spent the money. This will make a difference to thousands of businesses.'
Cathy Goodwin, Food Service Equipment Consultant added, 'The fact they’ve extended the capital investment write off is amazing for hospitality businesses. But don't forget there are also government rebates on Energy Efficient Refrigeration in New South Wales. You can access rebates of up to $1,450 when you invest in new energy-efficient refrigeration.
'To me, when the government offers you money and you're going to be saving energy, that's a no-brainer in terms of long- and short-term cost savings. Additional advantages include, obviously, reducing your environmental impact and improving the efficiency and visual appeal of your venue.'
Company loss carry-back
This Federal Budget initiative offers cash flow support to businesses that were previously profitable but are now making a loss due to COVID-19. If your turnover is less than $5 billion and you made (or make) a tax loss in 2019-20, 2020-21 or 2021-22 income years, you can offset the loss against previously taxed profits in 2018-19 or later income years, allowing income taxes previously paid to be refunded.
How it could work in practice
Using the same example of a coffee roasting business, let's say in prior years the business has been profitable and paying tax. However, as a result of the COVID-19 pandemic; together with the installation of the new and used plant/equipment which they claimed as a tax deduction in 2021; the company made an overall loss for the year of $400,000. Assuming taxes in the past were paid at 30%, the company will be due a cash refund of $120,000 upon lodgement of their 2021 company tax return.
What the experts say
Canio Muscillo told us: 'This is an excellent initiative and one that will be extremely popular, especially when used in combination with the instant asset write off. It allows companies to get immediate cash refunds for tax paid in prior years, rather than waiting for future profitable years.
'With the way things currently stand, business owners will not invest if they have to wait for a future tax benefit. After all, who can judge whether their business will be disrupted again and may not even be around to reap future tax benefits?'
'This initiative puts cash back in pockets as soon as the next tax return in July, which will make a big difference to the willingness of business owners to invest.'
Job Maker Hiring Credit and Apprentice Wage Subsidy
These initiatives are designed to motivate businesses including cafes and restaurants to take on additional young job seekers.
Wage subsidy for apprentices and trainees
Employers hiring new or returning apprentices and trainees will be eligible for a wage subsidy of up to 50 per cent of their wages, capped at $7,000 per quarter. The subsidy runs from 5 October 2020 to 30 September 2021 with 100,000 places available.
Job Maker Hiring Credit
The Job Maker Hiring Credit allows businesses to claim a rebate for every new job they create where they hire a young person aged 16 to 35. For new employees aged 16 to 29 the rebate is $200 per week; for new employees aged 30 to 35, the rebate is $100 per week.
To be eligible, the employee must have been receiving the JobSeeker Payment, Youth Allowance or Parenting Payment for at least one of the three months prior to when they were hired, and must work a minimum of 20 hours per week.
The JobMaker Hiring Credit will be paid quarterly in arrears. It will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created. Employers will need to demonstrate that the new employee will increase overall employee headcount and payroll.
How it could work in practice
Gavin owns a popular local cafe. Since COVID-19 he's expanded his offering to provide takeaway and he's looking to hire a new delivery person for 20 hours per week. His neighbour's son, Ted, has some experience working in hospitality as a waiter, but unfortunately lost his job when the restaurant he worked at closed during COVID-19. He's interested in working for Gavin at the café.
Ted is 18 years old - working for Gavin he'll earn $14.58 per hour. His weekly wage is $291.60. Gavin claims the JobMaker Hiring Credit for Ted and gets a rebate of $200 per week. Gavin's nett cost per week is $91.60. Ted's wages are therefore subsidised by 69%.
What the experts say
Howard Searle, owner of Lady Marmalade Café in Brisbane commented, 'Anything that gets people into work is a good thing, so it's great to see these initiatives. While the youth unemployment scheme is an excellent program it would be better to extend any unemployment programs to mature age job seekers as well.
'We're looking into the training subsidies for apprentices and trainees. We'll potentially add an apprentice chef, and depending on what sort of trainees are eligible, we might look at that too. There's a lot of reading involved in all these things - you have to really go through and understand every aspect of it. At the same time, you have to get in there quickly for grants like this before they run out.'
Personal income tax cuts
The Federal Budget brings forward the start date for 'Stage Two' personal income tax cuts, to 1 July 2020 (originally planned for 1 July 2022). The start date being this past July means an immediate cash increase for many employees.
'Stage Three' personal income tax cuts, which largely impact mid-to-high income earners does not change in this Federal Budget and remains scheduled for 1 July 2024.
Key changes from July 2020 include:
- Increasing the top threshold of the 19% tax bracket to $45,000 (from $37,000)
- Increasing the top threshold of the 32.5% tax bracket to $120,000 (from $90,000)
- Increasing the low income tax offset from $445 to $700
There's plenty in the Federal Budget for cafés, restaurants and hospitality businesses. It's important to get advice from a qualified accountant to ensure you make the most of what's on offer. Schemes such as the Apprentice Wage Subsidy will be popular and are capped with a maximum number of places, so it's important to do your research and apply fast.
As a minimum, restaurant and café owners should be talking to their accountants about the following initiatives from this year's Federal Budget as soon as possible:
Temporary Full Expensing – invest in new or used equipment and you could claim the full amount in your upcoming tax return. You're still eligible if you finance your equipment, meaning you don't have to fund the purchase with your own cash up front.
Company Loss Carry Back – if you made a loss this tax year but were previously profitable, you can claim back some of your previous tax paid. This could provide a much-needed cash injection.
Job Maker Hiring Credit and Apprentice / Trainee Subsidies. You could claim rebates from the government for employing and training new staff in your business.
Additionally, you should see the benefit of personal income tax cuts on your own income as well as your employees'.
Thanks go to Canio Muscillo, Director of MURO Accountants , who provided valuable guidance and insights for this article.
*SilverChef does not provide taxation, accounting or financial advice and you should seek advice from a qualified professional before acting on the information in this article.