The taxman cometh: How brokers can help SME clients at EOFY

A confluence of events in the past year has meant that the 2021-22 end of financial year (EOFY) period is filled with opportunities for brokers to assist their small-to-medium enterprise (SME) clients.

While uncertainty initially clouded the minds of SMEs due to the imposition of social distancing measures, lockdowns and business shutdown in 2020 (particularly in the hospitality sector), government stimulus measures, as well as tax incentives in the 2020-21 federal budget (which were extended in the 2021-22 budget) boosted business confidence and appetite to purchase equipment.

Figures from Equifax showed that business credit demand has returned to pre-COVID levels, driven by an 8.9 per cent jump in asset finance applications.

Indeed, NAB CEO Ross McEwan said that equipment finance lending at NAB is now up 22 per cent year-on-year, thanks to a booming market and, in part, due to some of the tax incentives announced in last year’s budget. 

According to the major bank, overall, agricultural equipment finance sales rose by 130 per cent in 2020, while industries like manufacturing also increased 130 per cent 
year-on-year last year.

NAB executive commercial broker and equipment finance sales Chris Thomas told The Adviser that the increased demand for agricultural equipment in regional locations has been driven by farmers seeing strong crop yields and increased profits, while in metro locations, enquiries have increased for acquiring industrial land and building new warehouses, and purchasing equipment to operate those businesses.

In May, NAB began allowing commercial brokers and their clients to digitally self-declare their business financials, which it said would fast-track its approach to small-business lending up to $2 million, including term debt facilities up to $2 million, overdrafts up to $500,000 and commercial cards up to $50,000.

As such, Mr Thomas told The Adviser: “I think brokers should be really optimistic about the opportunities that are there for them to engage with their business customers. 

“There are so many ideas floating around with SME owners, and there is a demand for finance. Brokers have a great opportunity to take the time with those clients and turn those ideas into reality.”

As such, brokers can capitalise on the strong SME appetite by guiding them through asset purchases and highlighting the tax benefits available to them.

Full expensing measure

One measure that brokers can highlight to their SME clients is the fact that they can make tax deductions on asset they may wish to purchase.

In the 2021-22 budget, the government extended the 2020-21 JobMaker temporary full expensing measure until 30 June 2023 to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to immediately deduct the full cost of eligible depreciable assets, such as vehicles, of any value acquired from 7:30pm on 6 October 2020 and first used or installed ready for use by 30 June 2023. 

All other elements of temporary full expensing remained unchanged, including the alternative eligibility test based on total income. The government said that normal depreciation arrangements will apply from 1 July 2023.

Loss carry-back provisions

In this year’s budget, the government also extended the temporary loss carry-back provision, which it introduced last year to support business cash flow. The extension will allow companies with an aggregated turnover of less than $5 billion to “carry back” or utilise tax losses from the 2022-23 income year to offset previously taxed profits dating back to the 2018-19 income year when they lodge their 2022-23 tax return. 

For example, if a business is at break-even but wants to grow, they could purchase new equipment and (if installed before 30 June 2023) fully expense the cost via the expensing measure but also claim a tax refund through the loss carry-back provision.

The government said the tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry-back does not generate a franking account deficit. Furthermore, companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

There is an opportunity for brokers to become the adviser of choice for SME clients during EOFY by upskilling their financial literacy around accounting and tax “organically” through partnerships with accountants.

What can brokerages do for their business?

As well as helping SME clients seek asset finance funding to take advantage of the above tax measures, EOFY is a time for brokers to re-evaluate the structure of their own businesses. 

Indeed, at a recent LendED small-business accounting education program, specialist SME accountant Davie Mach suggested to brokers that they could operate as a company instead of a sole trader. He also suggested that some brokers may wish to separate their company and personal finances from an accounting and general liability perspective.

Tax rates for small businesses with an aggregated turnover of less than $50 million have been reduced from 30 per cent to 25 per cent, he explained.

“It’s therefore far more attractive to run finances through the business versus personally (by comparison, the average broker is often taxed up to 47 per cent, including Medicare levy),” he said. 

A helping hand for property investors 

In addition to assisting SME clients, brokers can provide individual clients who own investment properties with handy tips and savings mechanisms during tax time. This opens doors for brokers to entrench themselves in a client’s existing home loan journey even after the loan is settled.

Clients who own an investment property may be eligible to claim an immediate deduction for the income year they incur them, including advertising for tenants, body corporate fees and charges, council rates, water charges, land tax, pest control, and garden and lawn mowing.

If the client’s property is negatively geared, they can deduct the full amount of rental expenses against their rental and other income, such as salary and wages and businesses income. 

Property owners could claim interest charged on the investment property loan if they renovated, purchased a depreciating asset (for example, air conditioner, blinds, carpets and ovens), or made repairs to the rental property.

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NAB partner message 

As EOFY rapidly approaches, NAB is proud to partner with The Adviser to deliver the latest insights to brokers. 

With Australia’s business-led economic recovery well underway, EOFY presents a timely opportunity for brokers to engage with their SME and commercial clients. Brokers that have a deep understanding and close connection to their clients are uniquely positioned to support businesses grow in FY22 and beyond.  

NAB supports all types of businesses, from rural farms to inner-city cafes. We recently launched a raft of new products and initiatives to further support brokers and a more diverse range of business customers. 

NAB has 650 broker-aligned bankers nationally, and recently added 134 business bankers (many of whom are broker-facing) to support this additional demand.

Lending around $2.5 billion every month to create investment, new jobs and opportunities, NAB is Australia’s largest business bank and continues to back Australian businesses now and into the future.

Chris Thomas

executive commercial broker and equipment finance sales, NAB

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*The content in this feature is general in nature and should not be relied upon in place of appropriate professional tax, legal or financial advice. Brokers and their clients should consider whether the information is appropriate to their needs, and where appropriate, seek professional advice from a tax or financial adviser.