The 2020 Federal Budget was built on a number of assumptions…that a COVID-19 vaccine would be available by the end of 2021; state borders (other than WA) would be open by Christmas and business conditions would have moved from recessionary to growth. It also rests on the absence of further and more widespread outbreaks of the virus. At time of writing, South Australia had just entered a state-wide lockdown, highlighting the somewhat tenuous nature of circumstances business owners continue to deal with. In this article, I explore why now more than ever, cashflow management is critical for mining and resources businesses and identify FIVE Budget support measures that can help.
The Treasurer made clear that future Federal Budget support measures will be more targeted, and much more limited. Many pre-existing stimulus packages or payment deferral arrangements that were available broadly to the economy are being reduced or otherwise coming to an end. As a result, for business owners, cash flow management over the coming months will be critical.
If you haven’t done so already, it is important to build a robust cashflow forecasting and management process that will provide clear insights for future decision making.
Not only will this enable you to effectively manage cash for continued day to day operational needs, it will also allow you to plan for the cash flow impact of deferral arrangements (such as income tax or payroll instalments) and the normalisation of the timing of future payments.
Importantly, cash flow forecasting will allow you to consider how you’ll fund the future growth of your mining and resources business should uncertain economic conditions continue.
So, what Federal Government support is available that can boost your cash flow …
1: Economic stimulus measures
The Budget includes a range of spending initiatives in areas such as manufacturing, research, roads, infrastructure and residential construction. This will directly benefit SME businesses in these industries, and indirectly benefit SME businesses that supply into these industries.
Mining and resources business owners should consider how your business can be positioned to take advantage of the unprecedented level of Government spending that will occur now and over the coming years.
2: Instant Asset Write-off: New & Second-hand
From 6 October 2020, the instant asset write-off will be expanded to apply to businesses with aggregated annual turnover of less than $5 billion.
It will apply to all new assets that are acquired and used/installed between 7:30PM AEDT on 6 October 2020 and 30 June 2022. The cost of these new assets can be written-off in full in the year that the asset is first used or installed ready for use in the business.
In addition, businesses with aggregated annual turnover of less than $500 million can write-off second-hand assets costing less than $150,000 so long as they are purchased by 31 December 2020.
Businesses will have a further six months until 30 June 2021 to use or install the asset.
Previously, small businesses were able to claim the entire balance of their small business asset pool if the balance of the pool is less than $150,000 (for the 2020 year). Under the proposed Budget measures, this threshold will no longer apply, so the entire balance of the small business asset pool can be claimed.
In addition, the restriction on small businesses re-entering the simplified depreciation regime for five years if they opt-out will continue to not be applied.
3: Temporary Loss Carry Back
For mining and resources businesses that make tax losses in FY20, FY21 or FY22, but have paid tax in FY19, FY20 or FY21, business owners will have the opportunity to “carry back” the later year tax losses and receive a refund of the tax paid in the earlier years.
The scheme is open to all Australian resident companies with an aggregate annual turnover of less than $5billion.
While there are some conditions and a need for planning around franking account balances and dividend payments, for mining and resources businesses the potential tax benefits and cash flow boost that can result are well worth considering.
4: JobKeeper and JobMaker
The Budget implies that JobKeeper arrangements will cease on 28 March 2021 and the new job support payments for businesses are much less financially generous.
Under the new JobMaker system, a subsidy is available for new apprentices and for hiring new employees aged 16 to 35 years who have previously been on JobSeeker or similar benefits.
Businesses should assess their eligibility for the new JobMaker subsidies, and importantly will need to consider and plan for impacts that the cessation of JobKeeper might have on the profitability and cashflow of your business.
5: Small Business Tax Concessions
The increase in the $10M to $50M turnover threshold for small business tax concessions, is a welcome change that has been sought for years. It means that most Australian private businesses will now qualify for a range of tax concessions that simplify their tax compliance. For eligible businesses these concessions include:
- Being able to immediately deduct certain expenses when starting up a small business (such as professional, legal and accounting advice), as well as claim deductions upfront on prepayments of expenditure.
- Being largely exempt from FBT on car parking benefits.
- Able to access the simplified trading stock rules, the GDP adjusted notional tax method for PAYG instalments, and settle excise duty monthly on eligible goods, and
- Having a 2-year amendment period for income tax instead of the usual 4 years. This will not however apply to entities with significant international tax dealings or particularly complex affairs (these terms are yet to be defined by the Government).
There’s a lot to consider, however as indicated here the current and future success of your mining and resources business may very well boil down to how you manage your cashflow.
Checking the reliability of your cashflow reporting is as simple as asking these three questions:
- Am I confident that I have considered all known upcoming financial outlays, including deferred payments, capital outlays and one-off items that have eventuated due to the COVID crisis?
- Have I considered the various Government tax concessions and stimulus packages made available by the State and Federal governments and sought to access these where reasonable?
- Have I consulted with my accountant or financial advisor to make sure I am capturing all likely outcomes in my forecasting model, and to ensure I am maximising my business’s ability to access government funding and assistance?
For further information and assistance with financial management strategies for your mining and resources business, please contact Craig Barry on +61 (0) 7 3007 2000 or email firstname.lastname@example.org
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