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.