2020 has been a crazy, unpredictable year. It started off much like any other year (bushfires excluded), but quickly changed into one of the most challenging years the community has ever seen. I am not sure anyone had global pandemic, population lockdown and recession in their risk mitigation plans.

Today, with clarity on the short to medium term support measures introduced in the 2020 Australian federal budget, it is timely to plan for business recovery, ensuring you access your entitled benefits along the way.

Planning is critical

Business plans need to be living, breathing beasts.  In these uncertain times it is critical to review and update your business plan regularly.  If you do not have a business plan, the process of internal review to develop a business plan can help give clarity on how to advance your business moving forward.

A great first step is to undertake a health check of your business to help identify key positives and negatives. This process will also assist in identifying the various risks your business faces. Once the key risks of the business are understood it is then important to review the risks, understand the potential impacts to the business and develop potential plans to mitigate against these risks. Similarly, this process can also help identify potential opportunities for your business to help maximise returns.

For assistance with formulating a business plan or to undertake a robust health check for your business, please contact your local Bentleys advisor.  We will be happy to assist with the process.

Opportunities available from budget announcements

The Federal Budget was announced on Tuesday 6 October 2020.  This extraordinary budget has presented numerous opportunities for potential transactions. Here are three key opportunities to consider as you plan for business recovery:

1.    Instant asset write-off

The Federal Budget announced that businesses with less than $50 million turnover can claim an immediate deduction for any new or used asset purchases, or for the cost of improvements to existing assets, until 30 June 2022.  For businesses over $50 million turnover but less than $5 billion turnover, the new rules exclude second-hand assets. This is a great incentive if your business needs capital upgrades and can afford the cash flow required for such expenditure.

Careful consideration should be made in relation to:

  • the expected return to be generated from each specific capital asset
  • finance options available for the business
  • the cash flow impact of the expenditure, plus any offset generated from tax deductions available.

Please note, for businesses over $50 million turnover but less than $500 million turnover, the $150,000 asset write-off rules still apply up to 31 December 2020, allowing deductions for second-hand assets.

2.    Loss carry back

The Federal Budget also introduced the new loss carry back rules for companies. These rules operate very similarly to those which were previously introduced by the Gillard Government. Effectively this regime will allow losses incurred in the 2020, 2021 or 2022 years to be offset as refundable credits against profits from the 2019 or later years. This can result in cash back to the taxpayer where tax has previously been paid in the 2019 or later years.

The new asset write-off rules can work in conjunction with the loss carry back rules, giving potential to convert losses generated from the purchase of new assets directly into cash. As an example, a company made profits and paid tax in 2019 and 2020, then has experienced a downturn in 2021 due to COVID-19 which will result in a small profit. The company could purchase assets and claim an immediate write off, therefore switching the company from a small profit to a loss. Under the loss carry back rules this loss can convert to a refund of taxes previously paid, equal to the current year loss multiplied by the company’s tax rate. This amount is capped at the total tax paid by the company in the 2019 and 2020 years.

3.    Cash flow impact

It is important to understand the potential future cash flow impact of any major transaction. As such it may be prevalent to ensure your business’ financial modelling and budgeting is up-to-date. This will help guide decisions regarding the availability of cash and the impact of any potential additional borrowings. Financial modelling can also assist when times are tough, to help understand how differing business decisions and trading performance can impact the key elements of the business. It may be useful to understand break even analysis, or perform sensitivity analysis on differing scenarios, or help to steer the business to greener pastures.

Various other supports and incentives are available for businesses through these difficult times. The Federal Budget also announced the new JobMaker provisions along with other measures to assist businesses. Additionally, other assistance measures can be available through measures and grants introduced from state and local governments. These may come with certain conditions for accessibility, being informed on what is available and how these operate is very important. Your Bentleys advisor will be able to assist you through this process.

If you have any questions as to how this budget impacts you, your family or your business, or if you would like to perform a robust health check on your business to inform the design of your business recovery plan, please contact your local Bentleys advisor. We are here to help you navigate these challenging times and to help you get to where you want to be.

As a very high level indicator of the health of your business, answer ten questions in our online quiz here.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

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