I run a small bakery business, with three locations in Sydney. Despite many sectors struggling, I have been able to maintain a modest amount of growth by branching out from simply baked goods to things like coffee. Like most small business owners I have watched the government and media intensely in 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 writeoffs for vehicles, especially since I am planning to deliver my products soon. The loss 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 debt. 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 Reserve Bank's 50 basis points cut.
The budget did some favours for small business, and it looks like you are across the list.
One of the cornerstones of the government's management of the global financial crisis that really had a positive outcome was the investment allowance for new plant equipment and motor vehicles. The latest initiative is similar and will hopefully have that same flow-on effect for small businesses' confidence.
One point of clarification regarding the vehicle tax writeoff you are referring to: it is for more than 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.
I do not necessarily agree that the loss carry-back scheme will not promote innovation. I have seen some negative media commentary about this initiative, specifically that it is available to only a small number of small- to medium enterprises. I think it will apply to a good number of businesses.
The mechanics of the loss carry-back initiative will allow a business to claim losses of up to $1 million against the previous year's profits. In practice, this means that if a business made a loss in the year ending June 30, 2013 but it made
a profit and paid tax this year, it can effectively combine the two years' results and get a refund of a portion of the tax paid. In the next financial year, the "look-back" period will
be two years.
Why does this matter? We are 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 are prepared to take a calculated risk and it does not 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 is going on, but my best advice for you, and for 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 do not try to grow faster than you are able to manage. You are 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 cannot do a summation in five key figures. Make sure you are not one of them: it is the best thing you can do to plan against uncertainty.
Mark Bouris is the 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.
Mark Bouris will be hosting his Secrets to Business Success seminar on May 30. For details, go to ybr.com.au.
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 in the federal budget should everyday investors know about?
The article highlights two practical measures for small businesses: an immediate deduction for the first $5,000 of a new or used vehicle and immediate deductions for new business assets that cost less than $6,500 (for as many qualifying assets as you buy). It also outlines a loss carry-back scheme that lets businesses claim losses of up to $1 million against the previous year’s profits, which can produce tax refunds and help cash flow.
How does the vehicle tax write-off and immediate asset deduction actually work for small businesses?
According to the article, the Tax Office will allow an immediate deduction for the first $5,000 of 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. That makes purchases like a new coffee machine easier to expense in the year you buy them.
What is the loss carry-back scheme and how can it help my business cash flow?
The loss carry-back initiative allows a business to claim losses of up to $1 million against the previous year’s profits. In practice, if you made a loss in one year but paid tax on profits in a prior year, you can combine results and potentially get a tax refund. The article gives the example of a loss in the year ending June 30, 2013 being offset against the prior year; the look-back period will extend to two years in the next financial year.
Will the loss carry-back scheme encourage small business innovation?
The article notes some media skepticism that the scheme only helps a small number of small-to-medium enterprises, but the author disagrees. He argues the measure can apply to many businesses and that the availability of refunds for losses can make it less risky to take calculated chances—so it can support innovation by softening the financial blow if plans don’t pan out.
What practical steps should small business owners take after the treasurer announces a budget?
The article’s advice is to take matters into your own hands: get back to basics, watch spending, and avoid growing faster than you can manage. Have a clear business budget and cash-flow plan ready, and use any tax write-offs or refunds strategically—for example, to reduce debt rather than taking on more.
Why is having a budget forecast important for small businesses and everyday investors?
The author stresses having your budget forecast done by the time the treasurer announces his budget. Many people can’t summarise their plan in five key figures; being able to do so helps you plan against uncertainty, make informed spending and investment decisions, and respond quickly to changes in the economic environment.
How can I use tax refunds or immediate deductions to improve my business’ financial health?
Immediate deductions (for a $5,000 vehicle concession or assets under $6,500) reduce taxable income in the purchase year, lowering tax payable. If you qualify for the loss carry-back and receive a refund, the article recommends using that refund to reduce debt or shore up cash flow rather than taking on more borrowing—helping stabilise your business in uncertain times.
Who is giving this small business budget advice and where can I find more resources or ask questions?
The advice in the article comes from Mark Bouris, executive chairman of Yellow Brick Road, a wealth‑management and small business advisory firm. The article notes he will host a 'Secrets to Business Success' seminar on May 30 (details at ybr.com.au) and that questions for him can be emailed to Max Mason at max.mason@fairfaxmedia.com.au. The article also states Bouris’s comments are intended as guidance only.
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