Give investment stimulus time to work - extend it to December

Tax incentive deadline too soon for proper business investment planning

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Call for instant depreciation write-off to run another six months so small businesses can make the most of it after coronavirus

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A three month time slot to take advantage of the federal government's $150,000 investment incentive doesn't give a lot of businesses enough time to make useful spending decisions in the current awkward climate.

Licensed financial advisor Helen Baker wants to see the instant depreciation write-off on new equipment extended until December, encouraging small businesses to make the most of the opportunity as they emerge from the coronavirus emergency.

Prior to the COVID-19 outbreak research by online lending and financial information service platform Money.com.au found two thirds of Australian businesses had planned to invest in capital in 2020-21.

About 88 per cent of the 261 respondents to the independent survey were small or medium sized enterprises.

While I still expect to see strong take-up of businesses using the current opportunity to invest this financial year, there are good grounds for businesses to push for an extension - Helen Baker, Money.com.au

Half planned to buy vehicles and 30pc said equipment and machinery.

"While I still expect to see strong take-up of businesses using the current opportunity to invest this financial year and write purchases off on their tax, I think there are good grounds for businesses to push for an extension," said Money.com.au representative, Ms Baker.

"This is especially relevant if we are to take advantage of the opportunity to do more value-adding and processing in Australia."

Although the farm and food sectors have so far weathered the economic slump relatively well, supply chains had been disrupted and Ms Baker said most Australian businesses were "still trying to get their head around how they'll operate, or keep going".

As the economic recovery phase ramped up in the next few months, the business sector would assess what its equipment needs would be.

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Prior to the pandemic hitting the survey had found 26pc had planned to invest in assets worth up to $50,000, after July, and 74pc in assets of up to $150,000.

Helen Baker

Helen Baker

"When businesses purchase new equipment it is often linked to efficiency and growth, so many will find this investment pays for itself - despite the upfront costs," she said.

"The new instant tax write-off threshold provides a great opportunity for businesses doing well to instantly reduce the amount of tax they have to pay, instead of waiting to claim on depreciation, which could take a long time to get back.

"If purchases are made from Australian made products or businesses this will also help lift sales orders, cash flow, employment opportunities.

"But the new thresholds are for three months only."

She warned from July, the criteria changed again to be applicable to much more modest purchases of up to $1000 and available only to small businesses with a turnover below $10 million.

Longer term option

Meanwhile, although an alternative tax reward may not be so immediate, Canberra's offer of an extra year of spending time for businesses making big ticket investments may prove to be a timely boon for farmers and farm commodity processors.

Equipment purchases of any value above $150,000 will qualify to take advantage of the one-off 50pc tax depreciation offer until June 2021.

Big equipment purchases such as harvesters or grain silos were unlikely to be available for delivery in time for a 2019-20 tax write-off opportunity, the offer at least gave farmers time to plan ahead and not miss out.

Adelaide-based agribusiness accounting specialist Ben Trengove, said the extended investment incentive timeline had prompted supply chain operators to plan for big upgrade projects which may otherwise have been on hold.

He was aware of horticultural produce processing plants making plans for new packing lines, partly on the strength of the 50pc depreciation opportunity.

"In times of uncertainty this offer has given them confidence to go ahead," said Mr Trengove, a director at accounting firm William Buck.

"When you're talking about buying a $900,000 item of farm machinery or a major addition to a nut processing facility you also need time to find the money and make the right equipment purchase."

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