How To: Leveraging the New Stimulus Package

There is no doubt we are all travelling in unchartered 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? 

**On 11/06/20 the Australian Government extended the Instant Asset Write-Off Incentive until 31/12/20. This article has been updated to reflect that change.

In response, the Government announced a stimulus package on 12 March 2020, which goes some way to addressing the likely economic impact. The $17.6B 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 $30K to $150K with expansion to include businesses with annual turnover up to $500M (up from $50M) until 31 December 2020. This could provide a massive immediate positive tax impact for many businesses purchasing assets over the course of this year. Tony said, “Increasing the threshold to $150K is great, but increasing the eligibility to businesses turning over up to $500M 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 $3.2B 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 $500M will be able to deduct 50% of the asset cost in the year of purchase.

Dicker Data is proactively working with its partners to help Australian companies leverage these incentives with several ways to make the most of them:

Remote working: Increasing numbers of Australians are having to work remotely to help avoid the further spread of COVID-19. The Australian IT channel, in partnership with Dicker Data, have 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. View a range of our remote working solutions available today. 

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 & Retention: Studies show that millennials want to work with the latest technology - which is an incentive to attracting and training 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 of Dicker Data’s 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 & 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. Dicker Data’s 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 had a very short window (three months) to take advantage of the 100% asset write-off benefit, but due to the Governments support and extension we have until the end of the year - for many businesses this provides a great strategic move. Taking a longer-term view by leveraging this huge tax advantage will set your business up for the future. Dicker Data can also offer finance allowing equipment to be purchased on a payment plan, but with allowance for the 100% asset write off at 31 December 2020.

In conclusion Tony said, “It’s a very generous concession. Assume that you’re a business with a likely profit of say $1M, a tax payable of $300K and a turnover of less than $500M. Also assume that you buy some equipment for $500K before 31 December 2020 (each item costing less than $150K) and you immediately write that entire cost off and pay tax on $500K (i.e. only $150K in tax) - that’s a 50% discount to your tax. Essentially the $500K worth of equipment has cost you $350K.” he said.

“Companies should think about a replacement to their entire IT system – if a larger business with turnover up to $500M invests before 31 December 2020, the 100% tax deduction could make a huge impact to their cash flow this year.”

The advice provided in this blog is general in nature only and does not factor in your individual circumstances. Always refer to your professional taxation adviser before making a decision or acting on the content in this article.