There is no doubt we are all travelling in uncharted waters right now. The COVID-19 pandemic has made for unprecedented times. We spoke to Tony Sloan, a tax partner with BDO who looks after Dicker Data’s tax obligations. He said: “This isn’t something businesses have ever experienced before. It’s a constantly shifting situation that needs to be monitored on a day-by-day basis”.
With many offices directing employees to work from home, and others mindful of the economic impact the virus will have on their business and the wellbeing of their employees and staff -- the impact on the economy is not yet known.
What does this mean for businesses?
In response, the federal government announced an initial stimulus package on 12 March 2020, which goes some way to addressing the likely economic impact. The $17.6 stimulus is mostly targeted towards businesses with the measures all temporary, targeted and proportionate to the challenge we face. The stimulus package focuses on keeping Australians in jobs and keeping businesses in business so the nation can bounce back strongly.
The most important part of the package is an increase to the instant asset write off threshold from $30,000 to $150,000 with expansion to include businesses with annual turnover up to $500 million (up from $50 million) until 30 June 2020. This could provide a massive immediate positive tax impact for many businesses purchasing assets in the next three months.
Sloan said, “Increasing the threshold to $150,000 is great, but increasing the eligibility to businesses turning over up to $500 million really opens it up. That’s a ten-fold increase and will mean that the majority of businesses Dicker Data and its partner network do business with will be eligible”.
The second is $3.2 billion to back business investment by providing a 15-month investment incentive (to 30 June 2021) by accelerating depreciation deductions. Businesses with a turnover of less than $500 million will be able to deduct 50 per cent of the asset cost in the year of purchase.
Australian companies can leverage these incentives in several ways to make the most of them. These include:
Remote working -- increasing numbers of Australians are having to work remotely to help avoid the further spread of COVID-19. The Australian IT channel has the expertise to quickly enable businesses to transition to remote working.
That includes anything from technology to help staff work comfortably from home, such as laptops, monitors, docking stations, and keyboards, etc...to remote collaboration or other software to enable video conferencing and improved communications.
Microsoft end of support -- the stimulus package comes just months after Microsoft announced end of support (EoS) for Windows 7. This announcement marked the end of security updates for the operating system, despite thousands of Windows 7 devices still being used by Australian businesses.
The stimulus provides an opportunity for businesses to refresh their technology with modern and more secure devices. Dicker Data and its partner community have a wide variety of laptop, desktop and tablet devices that will help modernise IT environments.
Digital transformation -- many businesses have undergone some level of digital transformation recently and are now enjoying the benefits. From increased productivity to reduced costs, and greater customer experience, digital transformation has changed the way businesses around the world operate.
The stimulus presents an opportunity to invest in the next wave of digital transformation with instant write-off. This could mean purchasing new infrastructure to keep up with growth experienced in newly transformed businesses, or further legacy technology upgrades to complete a modernisation.
Talent attraction and retention -- studies show that millennials want to work with the latest technology, which is an incentive to attract and train top talent. With a limited talent pool in Australia, finding, hiring and holding on to the best people, including millennials, is becoming more difficult.
Many partners support clients in specific industries, such as graphic design and movie production, to attract and retain top talent by providing a working environment with cutting-edge technology. This not only makes the employees’ lives easier but gives them the ability to push the boundaries and continue their own professional development.
Security, backup and disaster recovery -- business continuity during times of uncertainty, such as what we’re currently experiencing with COVID-19, is extremely important.
The Government’s new package offers Australian businesses the opportunity to review their technology environments and use the stimulus to invest in security, back-up and disaster recovery systems that may not have been otherwise considered.
Data breaches are becoming more common and every board needs to protect their data. Partners can recommend external auditors to conduct a security audit. The results can then be used to upgrade systems and ensure the right measures are in place.
The financial benefit
We have a very short window (three months) to take advantage of the 100 per cent asset write-off benefit; for many businesses it provides a great strategic move. Taking a longer-term view by leveraging this huge tax advantage will set your business up for the future.
In conclusion, Sloan said, “it’s a very generous concession. Assume that you’re a business with a likely profit of say $1 million, a tax payable of $300,000 and a turnover of less than $500 million.
“Also assume that you buy some equipment for $500,000 before 30 June 2020 (each item costing less than $150,000) and you immediately write that entire cost off and pay tax on $500,000 (i.e. only $150,000 in tax) - that’s a 50 per cent discount to your tax. Essentially the $500,000 worth of equipment has cost you $350,000.
“Companies should think about a replacement to their entire IT system -- if a larger business with turnover up to $500 million invests before 30 June 2020, the 100 per cent tax deduction could make a huge impact to their cash flow this year,” he said.
By Mary Stojcevski, Dicker Data executive director and chief financial officer.
This article was first published here.