I RUN a small bakery business with three locations in Sydney. We have been able to maintain a modest amount of growth by branching out from simply baked goods to things such as coffee. Like most small business owners I have watched the government and media intensely during the past few weeks to see what the federal budget will do to help me. I was disappointed to see there would not be a cut in company tax but I was encouraged by business write-offs for vehicles, especially since we are planning to deliver our products in the near future. The carry-back scheme seems like a good idea, but will it really promote innovation? I know I would prefer to reduce my debt with any refunds rather than put myself into more. But what else in the budget will help my business and other small businesses? I know there are many who are doing it a lot tougher than me as consumer confidence continues to flutter and with the banks not really helping, falling short of the RBA's 50 basis points.
THE budget did some favours for small business, and it looks like you're across the list.
One of the cornerstones of the government's management of the GFC that really had a positive outcome was the investment allowance for new plant equipment and motor vehicles. The current initiative is similar and will hopefully have that same flow-on effect for small-business confidence.
One point of clarification regarding the vehicle write-off you are referring to is that it's for more than just vehicles. Basically what was announced in the budget was that the Tax Office would allow an immediate deduction for the first $5000 for a new or used vehicle and an immediate deduction for new business assets costing less than $6500 for as many assets as you purchase. Good news for that new coffee machine of yours!
I don't necessarily agree with you that the loss carry-back scheme won't promote innovation. I've seen some negative media commentary about this initiative, specifically about it being available only to a small number of SMEs, but I think it will apply to a decent number of businesses.
The mechanics of the loss carry-back initiative for qualifying recipients will allow you to claim losses up to $1 million against previous year's profits. In practice, the operation of this idea means that if a business makes a loss in the year ending June 30, 2013, but it made a profit and paid tax in 2012, it can effectively combine the two years' results and get a refund of a portion of the tax paid. In the following financial year the "look-back" period will be two years.
We're in a volatile environment and many of the small businesses I talk to tell me that their results are anything but consistent from year to year. So if you're prepared to take a calculated risk and it doesn't pan out as expected, this tax refund can certainly soften a potential blow.
From the sounds of things,you seem to be right in tune with what's going on in the news, but my best advice to you and to any small business is to take matters into your own hands rather than wishing, waiting and hoping for some relief from the top. Get back to basics, watch your spending and don't try to grow faster than what you're able to facilitate. You're very focused on Wayne Swan's budget, but take a look at your own. I always tell people to have their budget forecast done by the time the Treasurer announces his. Many people think about their business plan and budget, but can't do a summation in five key figures. Make sure you're not one of them it's the best thing you can do to plan against uncertainty.
Mark Bouris is executive chairman of Yellow Brick Road, a wealth-management company and small-business adviser that sells products and services for home loans, financial planning, insurance, superannuation, investments, accounting and tax. His advice here is intended as guidance only.
If you have a question for Mark Bouris, email it to Max Mason at max.mason@fairfaxmedia.com.au.
Frequently Asked Questions about this Article…
What small-business tax measures were included in the federal budget that could help everyday investors who own a business?
The budget didn’t cut company tax, but it included measures to help small businesses: an immediate tax deduction for the first $5,000 of a new or used vehicle purchase and an immediate deduction for new business assets costing under $6,500 for as many qualifying assets as you buy. The package also includes a loss carry-back scheme for eligible SMEs and an investment-allowance style incentive similar to past GFC measures to boost small-business confidence.
How does the vehicle write-off and immediate asset deduction work for small businesses?
Under the announced rules the Tax Office will allow an immediate deduction of the first $5,000 for a new or used vehicle. Separately, you can immediately deduct new business assets that cost less than $6,500 each, for as many assets as you purchase. These measures are designed to make purchases like coffee machines or delivery vehicles more tax-efficient for small businesses.
What is the loss carry-back scheme and how can it benefit small businesses and investors?
The loss carry-back initiative lets qualifying small businesses claim losses of up to $1 million against prior-year profits, effectively combining results across years to obtain a refund of tax previously paid. For example, a loss in the year ending June 30, 2013 could be offset against profits and tax paid in 2012. In the following year the look-back period extends to two years. This can soften the blow of a bad year and support calculated risk-taking.
Will the loss carry-back scheme promote business innovation and investment?
The article notes some negative media arguing the scheme is limited to a subset of SMEs, but the commentator disagrees and believes it can promote innovation by allowing businesses to take calculated risks without facing the full downside. For many small businesses the potential tax refund can act as a safety net that encourages investment decisions they might otherwise avoid.
If I receive a tax refund from the loss carry-back scheme, should I reinvest it or use it to reduce debt?
The article reflects both views: some small-business owners prefer to use refunds to reduce debt, while the loss carry-back is intended to soften setbacks and enable risk-taking. Which is best depends on your business situation, but the commentary emphasises careful planning—watch spending, avoid over-expanding and consider your cash-flow priorities before deciding.
How should small-business owners prepare their budgets in light of a volatile environment and the federal budget changes?
The advice given is practical: take matters into your own hands—return to basics, monitor spending closely, don’t try to grow faster than you can manage, and have a budget forecast ready by the time the Treasurer announces the budget. Be able to summarise your plan in five key figures so you can plan effectively against uncertainty.
Did the federal budget include a company tax cut and how are banks affecting small-business conditions?
No, the budget did not include a company tax cut, which disappointed some business owners. The article also highlights that small businesses face a tougher environment because consumer confidence is weak and banks are not fully passing on RBA rate moves (falling short of the RBA’s 50 basis points), which can constrain access to cheaper finance.
Who provided the commentary on these budget measures and where can I find small-business financial advice?
The commentary is from Mark Bouris, executive chairman of Yellow Brick Road, a wealth-management and small-business advisory firm that offers home loans, financial planning, insurance, superannuation, investments, accounting and tax services. His remarks are offered as guidance only; the article also notes readers could submit questions to the columnist contact listed in the original piece.
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