Above: A JobMaker Hiring Credit will be available to eligible employers over 12 months from October 7, 2020

Adam Tims of Stable Financial breaks down the Federal Budget announcement from October 6 and explains how it will impact the thoroughbred industry.

This was a unique Federal Budget announced by the Treasurer on Tuesday, October 6, 2020, the first in 119 years held during the spring carnival (normally May). It was our first recession budget in three decades and boasted the biggest, relative Government spend since the Great Depression.

The Government seems motivated to get the money flowing again now rather than announcing any longer term structural reform. But these are unique times and “The Everest-like” quickfire measures to encourage business investment and job creation is adding as much as seven per cent to the GDP.

Being a spring budget, is there particular items of note for the thoroughbred industry in Australia? The answer is a clear yes.

More money in your pocket

At a cost of $17.8 billion, the Government will bring forward by two years its previously legislated phase 2 of personal tax cuts to take effect retrospectively from July 1, 2020.

In such a labour intensive industry, racing participants from stable hands to stud managers should all benefit now. Take for example someone earning $80,000 they will be better off by $2160 per annum (in comparison to tax paid in 2019 tax year).

The cuts will be a welcome boost to the local economy and is one of the key initiatives of the Government’s JobMaker Plan.

Time for business to have a crack

Significant measures have been announced to support capital investment by business through an expanded instant asset write-off regime, coupled with a tax loss ‘carry-back’ rule, which may provide additional cash to businesses.

Significant expansion to the instant asset write-off

The Government has announced a temporary full deduction for “depreciable assets” for all businesses – this is a massive and unexpected enhancement to the current program which is limited to assets costing up to $150,000.

This is one of the most expensive budget measures costing $26.7 billion. Businesses that acquire eligible “depreciating assets” from 7.30pm (AEDT) October 6, 2020 which are first used or installed by June 30, 2022, can deduct the full cost of the asset in that income year, with no limitation on value.

The cost of improvements to existing eligible assets can also be deducted. For entities with aggregated turnover less than $50 million, full deductions will also apply to second-hand assets.

Some more typical depreciable assets in the horse industry include floats, horse walkers, farm machinery etc. So do horses fit the definition of being a “depreciable asset”? For thoroughbred breeders the answer is sadly “no” as horse interests are treated as trading stock (Primary production, Livestock – horses) in line with section 70 of the Income Tax Assessment Act 1997.

“Some more typical depreciable assets in the horse industry include floats, horse walkers, farm machinery etc. So do horses fit the definition of being a “depreciable asset”?” – Adam Tims

However for horse trainers and syndicators (the buying bench for the breeders), we believe that horse interests are treated as “depreciable plant”. For instance, a horse trainer could buy a $500,000 yearling at Magic Millions in January 2021. They might sell down say 50 per cent of the yearling and would be entitled to completely write off their remaining share for the 2021 tax year, now being a $250,000 tax deduction.

When coupled with the loss carry back rule (discussed below), this measure may result in refunds of prior year tax paid to the extent that losses are incurred due to the investment in depreciable assets.

Tax loss carry-back rule

The Government has announced a loss carry-back rule for tax losses that are incurred in the 2019/20, 2020/21 or 2021/22 income years. Corporate taxpayers (not trusts or sole traders) will be provided a choice to carry-back and offset those losses against taxes paid in the 2018/19 or later income years.

The measure allows tax refunds (cash) to be accessed when lodging the June 30, 2021 income tax return. Accordingly, taxpayers will need to wait to access cash returns from this measure. Whilst there is no maximum loss that can be carried back, the offset will be limited to the lower of tax paid in the respective years and the extent of franking credits available.

Again this extra liquidity will be welcomed next year for those companies eligible and at a time when some other measures such as Jobkeeper will be closed.

Expenditure measures

The Government announced a large number of expenditure measures which are aimed at kick-starting the economy. Although many of these items have a smaller budgetary cost there are distinct benefits and we have focused on those most relevant to the horse racing industry including employment.

JobMaker Hiring Credit

The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.

Eligible employers will receive:

$200 per week if they hire an eligible employee aged 16 to 29 years or;

$100 per week if they hire an eligible employee aged 30 to 35 years.

The JobMaker Hiring Credit will be paid quarterly in arrears. It will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created.

Employers will need to demonstrate that the new employee will increase overall employee headcount and payroll.

To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.

Temporary visa holders working in Agriculture

The Government has made temporary changes to allow temporary visa holders currently working in the agricultural sector to continue to work in Australia during COVID-19.

Working Holiday Maker (subclass 417 and 462) visa holders currently working in food processing or the agricultural sector will be eligible for a further visa and will be exempt from the six-month work limitation with one employer. Seasonal Worker Program and Pacific Labour Scheme workers, and other visa holders currently in the agricultural sector whose visas are expiring, may have their visas extended for up to 12 months to work for approved employers.

Summary

The budget announcements are relying on business having the cash and confidence to have a crack and get our economy moving along again. Until a vaccine is widely available for COVID-19 there must be some uncertainty as to whether the Budget stimulus will be enough to keep Australia’s economic recovery on track. With racing continuing and spring in the air, Stable Financial senses some momentum and hopefully economic rewards for the resilient thoroughbred industry.

Article courtesey of TDN