Young couple and bank manager reading financial reports while having a meeting in the office.

With many retail businesses doing it tough as many states emerge from the COVID crisis (and many others in Victoria still in the thick of the crisis), business owners are looking for all the help they can get to re-establish themselves, save jobs and get customers back in the door.

There are lots of different grants and subsidies available from state and federal government, not least JobKeeper which is set to continue to offer wage subsidies to affected businesses through until the end of March 2021. But what other ways can the tax system help struggling businesses? Here’s my round up.

Company tax rates are falling

The tax rate for most companies with an aggregate turnover of less than $50 million dropped to 26% on 1 July 2020 (previously 27.5%).

This is great news for retail companies that reinvest profits into the business because it means that there will be more money to reinvest in staff, stock and stores and less to pay to the ATO.

It’s less good for companies that pay dividends to their shareholders since franking credits on dividends will also fall to 26%, meaning that the recipients of dividends will face higher personal tax bills; in effect, the burden of tax is passed from the company to the shareholder.

Tax breaks for unincorporated businesses are increasing

If you run a small unincorporated retail business, the tax offset you are entitled to is increased to 13% from 1 July 2020 (it was previously 8%).  The offset applies to businesses with a turnover of less than $5 million if you either:

  • are sole trader.
  • have a share of net small business income from a partnership or trust

Unfortunately, regardless of the percentage increase, the offset remains capped at a maximum of $1,000 so in practice only the smallest businesses will see any benefit.

Instant asset write-off continues

Through until 31 December 2020, most businesses can continue to immediately write-off capital purchases for items costing less than $150,000. The current tax break is available to all businesses with an aggregated turnover of less than $500 million and enables businesses to immediately deduct against current year profits items as diverse as retail fit-outs, tech purchases (such as computers, laptops, etc) and security systems.

However, from 1 January 2020 onwards, the tax break in its current form ends. From that date, an immediate deduction is only available for items costing less than $1,000 and eligibility is restricted to businesses with an aggregate turnover of just $10 million (in other words, small businesses that qualify for the simplified depreciation rules explained above).

Whilst there is a possibility that the government will extend the current scheme beyond 1 January 2021, it would be unwise to bank on that so if your business has surplus capital at present (or can access borrowed funds) now would be great time to invest in the capital assets that can make your retail business grow.

Purchasing cars and other motor vehicles

The ability to immediately deduct the cost of new motor vehicles has always been one of the most attractive features of the instant asset write-off. Now, with the threshold at $150,000 per asset, the range of new and second vehicles that could qualify for a deduction has increased greatly. Having said that, there’s a catch; the government doesn’t like providing deductions for luxury cars so it caps the amount that can be claimed for so-called “expensive” cars. The current cap is $59,136 and this overrides the $150,000 limit. So the maximum depreciation claim is $59,136 if you purchase a car costing more than that.

The depreciation cap on expensive cars doesn’t apply to commercial vehicles, broadly meaning vehicles with a payload capacity of more than one tonne. So, if you buy vehicles such as certain dual cab utes that can carry more than one tonne, as well as other commercial vehicles like trucks and vans you can write-off the entire cost up to $150,000.

Accelerated depreciation

The accelerated depreciation scheme allows eligible businesses to write-off substantial capital purchases much faster than normal and will offer a useful – if less generous – opportunity once the instant asset write-off drops back to $1,000 on 1 January 2020. The scheme is available now and will through until 30 June 2021 for all businesses with an aggregate turnover of less than $500 million. “Accelerated deprecation” works differently depending on the size of your business:

  • if you a small business (aggregate turnover of less than $10 million), you can claim 57.5 per cent of the cost of the asset (for those assets that cost more than the instant asset write-off threshold) in the year you acquire and first use or install the asset. The balance of the cost is then written off in future years in the usual way;
  • businesses that are not small businesses can claim a deduction of 50 per cent of the cost of the asset, plus half of the normal depreciation on the asset for that year. The balance of the cost is then written off over the effective life of the asset.

Only new assets qualify (second-hand assets are excluded) but there is no limit on the cost of qualifying assets.