The Federal Government passed the legislation for the stimulus measures announced on 12th & 22nd March 2020 to combat the economic downturn from the Coronavirus. The bill is waiting Royal Assent at the time of writing.
The measures passed are:
A. Boosting Cashflow for Employers
Small/medium businesses and not-for-profit organisations that employ staff will have access to cashflow support of $20,000 to $100,000 from the Federal Government. This is tax-free and does not need to be repaid. If you are eligible, the cash flow boost will be applied as a credit to your activity statement and reduce the amount payable to the ATO. Thereby giving businesses more funds to use in their business instead of paying the ATO.
The ATO will automatically calculate your entitlement when your activity statements are lodged.
The Cashflow Boost will be provided in two parts:
• Initial Cashflow Boost (from $10,000 to $50,000) – apply to the March 2020 and June 2020 quarters.
• Additional Cashflow Boost (from $10,000 to $50,000) – apply to the June 2020 and September 2020 quarters.
To be eligible, the not-for-profit entities and small/medium businesses must all:
• Hold an ABN on 12 March 2020 and continues to be active;
• Aggregated annual turnover of under $50 million (generally based on prior year turnover); and
• Made eligible payments that you are required to withhold from such as salary & wages, director fees, compensation payments, voluntary withholding from payments to contractors, and eligible retirement/termination payments.
Additional criteria announced as part of the final legislation released are the employers must have:
• Derived business income in the 2018-19 income year and lodged its 2019 tax return on or before 12 March 2020 or within such further time that the ATO allows; or
• Made GST taxable, GST free, or input taxed sales from 1 July 2018 onwards and lodged an activity statement declaring this on or before 12 March 2020.
Payments will be made to eligible businesses by the ATO after the quarterly Business Activity Statements and/or monthly Instalment Activity Statements are lodged. This is how we understand it will work:
• For quarterly lodgers, the amount of the payment received will now be calculated as 100% of the PAYG withholding tax eligible payments.
• For monthly lodgers, the amount of the payment received will be 300% of the PAYG withholding tax on eligible payments.
• Eligible businesses will receive the payment as a credit on their activity statement and will reduce their activity statement liability.
• If the payment results in an overall refund on their activity statement, the ATO will have to refund it within 14 days.
Businesses will receive the credits/payments through the activity statements lodged for the quarters ending 31 March 2020 to 30 September 2020:
• If you lodge your activity statements quarterly, the business will receive the credits for the March 2020, June 2020, and September 2020 quarters.
• If you lodge your activity statements monthly, the business will receive the credits on the March 2020, April 2020, May 2020, June 2020, July 2020, August 2020 and September 2020 months .
• Every eligible employer will receive at least the minimum $10,000 payment on the first activity statement lodged for the March 2020 quarter.
Example – Quarterly Activity Statement Lodger:
• PAYG withholding tax reported on the March 2020 & June 2020 quarter BAS is $10,000.
• Initial Cashflow Boost (Mar 2020 BAS) = $10,000 (100% of $10,000).
• Initial Cashflow Boost (Jun 2020 BAS) = $10,000 (100% of $10,000).
• Total Initial Cashflow Boost = $20,000 ($10K + $10K).
• Additional Cashflow Boost (June 2020 BAS) = $10,000 (50% of initial $20,000 credit in the March 2020 BAS).
• Additional Cashflow Boost (Sept 2020 BAS) = $10,000 (50% of initial $20,000 credit in the March 2020 BAS).
• Total Additional Cashflow Boost = $20,000 ($10K + $10K).
• Total Cashflow Boost received = $40,000.
Monthly Activity Statement Lodger: Example #1
• If the business PAYG withholding tax for the March-June 2020 month is $15,008.
• Initial Cashflow Boost (March 2020) = $45,024 (300% of $15,008);
• Initial Cashflow Boost (April 2020) = $4,976 ($50,000 cap less $45,024 payment already received).
• Initial Cashflow Boost (May & June 2020) = $NIL ($50,000 cap already used in prior months).
• Total Initial Cashflow Boost = $50,000 ($45,024 + $4,976)
• Additional Cashflow Boost (June 2020) = $12,500 (25% of Initial Cashflow Boost received of $50,000).
• Additional Cashflow Boost (July 2020) = $12,500 (25% of Initial Cashflow Boost received of $50,000).
• Additional Cashflow Boost (Aug 2020) = $12,500 (25% of Initial Cashflow Boost received of $50,000).
• Additional Cashflow Boost (Sept 2020) = $12,500 (25% of Initial Cashflow Boost received of $50,000).
• Total Additional Cashflow Boost = $50,000 ($12.5K + $12.5K + $12.5K + $12.5K).
• Total Cashflow Boost received = $100,000.
Monthly Activity Statement Lodger: Example #2
• If the business PAYG withholding tax is $6,000 for each month in March-June 2020;
• Initial Cashflow Boost (March 2020) = $18,000 (300% of $6,000).
• Initial Cashflow Boost (April 2020) = $6,000 (100% of $6,000).
• Initial Cashflow Boost (May 2020) = $6,000 (100% of $6,000).
• Initial Cashflow Boost (June 2020) = $6,000 (100% of $6,000).
• Total Initial Cashflow Boost = $36,000 ($18K + $6K + $6K + $6K)
• Additional Cashflow Boost (June 2020) = $9,000 (25% of Initial Cashflow Boost received of $36,000).
• Additional Cashflow Boost (July 2020) = $9,000 (25% of Initial Cashflow Boost received of $36,000).
• Additional Cashflow Boost (Aug 2020) = $9,000 (25% of Initial Cashflow Boost received of $36,000).
• Additional Cashflow Boost (Sept 2020) = $9,000 (25% of Initial Cashflow Boost received of $36,000).
• Total Additional Cashflow Boost = $36,000 ($9K + $9K + $9K + $9K).
• Total Cashflow Boost received = $72,000.
Eligibility for the cash flow boosts is denied if you have entered into a scheme to become entitled or increase the amount of the cash flow boosts (such as restructuring your business or increasing wages paid in a particular month to maximise the cashflow boost amount).
To obtain the cash flow boost, you must lodge your Activity Statements promptly.
B. Government-Backed Unsecured Loans for Businesses
The Federal Government will provide support to small and medium businesses with cashflow difficulties through a “Coronavirus SME Guarantee Scheme”. This will improve a business’ access to funding by enhancing a lenders’ willingness and ability to provide credit.
Small and medium businesses with a turnover of up to $50 million will be eligible to receive these loans.
The Federal Government will provide eligible lenders with a 50% guarantee for the loans with the below terms:
• Maximum size of loans of $250,000 per borrower;
• Loans will be up to 3 years with no repayments for the first 6 months; and
• Loans will be unsecured and borrowers do not have to provide an asset as security.
The loans will still be subject to a lenders’ credit assessment processes. The Scheme will commence by early April 2020 and be available for new loans made by participating lenders until 30 September 2020.
C. Quick and Efficient Access to Credit for Small Business
The Federal Government is providing an exemption from responsible lending obligations for lenders providing credit to existing small business customers. This exemption is for 6 months and applies to any business credit (including new credit, increases to credit limits, credit variations, and restructures).
D. Supporting Business Investment in Depreciating Assets
Businesses will be able to claim the “Instant Asset Write-Off” for eligible assets costing up to $150,000. The threshold was previously $30,000. This measure will apply for eligible new or second-hand depreciating assets purchased & used from the Federal Government announcement to on or before 30 June 2020
Businesses with an annual aggregated turnover of below $500 million will be eligible.
From 1 July 2020, the threshold will drop back down to $1,000 and only be available for small businesses.
Also, if your general small business pool written down value as of 30 June 2020 is below $150,000, the business can claim an immediate deduction for the balance of the pool.
Rather than claiming the depreciation on the assets over the effective life (which may be a number of years), businesses will be able to claim the entire cost of the eligible depreciating assets in the year of purchase and reduce the business tax liability.
E. Accelerating Depreciation Deductions
For depreciating assets that do not meet the “Instant Asset Write-Off” criteria above, businesses will be able to claim accelerated depreciation at 50% or 57.5% of the asset’s cost for the first year. The accelerated depreciation will apply to assets installed & used from 12 March 2020 to 30 June 2021. Businesses with aggregated annual turnover below $500 million will be eligible.
Eligible assets are:
• New depreciating tangible assets (such as plant & equipment, computers, furniture)
• New specified intangible assets (such as in-house software);
• Second hand depreciating assets are ineligible; and
• Building and capital works are ineligible.
The higher accelerated depreciation tax deduction will reduce the business tax liability.
F. Temporary Relief for Distressed Businesses & Individuals
Many businesses/individuals will face financial distress during the coronavirus period. The Federal Government will introduce a temporary safety net to lessen the actions that could them to bankruptcy, insolvency, or forced wind up during this period.
The measures which will apply for 6 months include:
• Increase in the threshold from $2,000 to $20,000 whereby creditors can issue a statutory demand on a company to force a liquidation.
• Increase in the time frame for a company to respond to a creditor’s statutory demand from 21 days to 6 months.
• Increase in the threshold from $2,000 to $20,000 that creditors can initiate bankruptcy proceedings against an individual.
• Increase in the timeframe for an individual to respond to a bankruptcy notice from 21 days to 6 months.
• When a debtor declares an intention to enter voluntary bankruptcy, they are protected from unsecured creditors taking further action to recover debts for a period of time. This period will be extended from 21 days to 6 months.
• Temporary relief of personal liability by directors from insolvent trading.
G. Increased Government Income Support for Individuals
The Federal Government is introducing a new Coronavirus supplement payment at $550 a fortnight. This will apply for 6 months commencing from 27 April 2020.
The income support payments eligible for the Coronavirus supplement are:
• Jobseeker Payment
• Youth Allowance Jobseeker
• Parenting Payment (partnered & single)
• Farm Household Allowance
• Special Benefit recipients.
The eligibility requirements will be expanded and more individuals are potentially eligible:
• Jobseeker and Youth Allowance Jobseeker criteria will now include permanent employees who are stood down or lose employment, sole traders, self-employed, casual workers, and contract workers who meet the income tests;
• Asset testing for the Jobseeker, Youth Allowance Jobseeker, and Parenting Payment will be waived for the period of the Coronavirus supplement.
• Waiting periods for the Government income assistance payments will be waived or reduced.
• Jobseeker and Youth Allowance Jobseeker payments will not be granted if individuals are accessing employer entitlements (such as annual or personal leave) or Income Protection insurance. Ie. you can access these Government payments when your employer entitlements and insurance benefits are exhausted.
• Jobseeker payment recipients will need to actively look for work or build their skills and the requirements will depend on the individual and their circumstances.
H. Government Payments to Support Households
Two separate $750 payments will be made on 31 March 2020 and 13 July 2020 to certain recipients of:
• Social security,
• Veteran; and
• Farm Household Allowance;
• Family Tax Benefit;
• Eligible concession card holders (including pensioner concession card, Commonwealth seniors health card, or Commonwealth Gold Card).
If you are entitled to the Coronavirus supplement in point G above, you will not be eligible for the second $750 payment on 13 July 2020.
I. Temporary Early Release of Superannuation
Individuals affected by the Coronavirus will be granted early access to their superannuation to support themselves. The superannuation withdrawn will not be taxable and will not affect their Centrelink or Veterans’ Affairs payments. You can apply through MyGov.
There are certain time frames and thresholds for early access to superannuation including:
• Up to $10,000 can be withdrawn from mid-April 2020 to 30 June 2020; and
• Up to $10,000 can be withdrawn during the year ending 30 June 2021.
• The maximum that can be withdrawn is $20,000 from now to 30 June 2021.
To be eligible, the individual must satisfy one of the following:
• Unemployed;
• Eligible to receive certain government income support payments;
• On or after 1 Jan 2020, the individual was either made redundant or working hours reduced by 20 hours or more;
• On or after 1 Jan 2020, if the individual is a sole trader, their business has been suspended or there was a reduction in their turnover of 20% or more.
J. Temporary Reduction in Superannuation Minimum Drawdown Rates
For the years ending 30 June 2020 and 30 June 2021, the minimum superannuation drawdown requirements for account-based pensions and other similar products will be reduced by 50%.
This will reduce the need for retirees to sell investment assets to fund minimum pension drawdown requirements.
K. Supporting Apprentices & Trainees
The Federal Government is supporting small businesses to keep their apprentices & trainees employed. Eligible employers can apply for a wage subsidy of 50% of the apprentice/trainee’s wage paid from 1 January 2020 to 30 September 2020.
Employers will be reimbursed up to a maximum of $21,000 per apprentice/trainee ($7,000 per quarter).
Criteria for eligible employers are:
• Small businesses employing fewer than 20 full-time employees;
• Must employ an apprentice or trainee;
• The apprentice/trainee must have been in training with a small business as of 1 March 2020;
• Must satisfy an eligibility assessment by an Australian Apprenticeship Support Network provider; and
• Employers of any size and Group Training Organisations that re-engage an eligible out-of-trade apprentice/trainee will also be eligible for the subsidy.
Employers can register for the subsidy from early April 2020 and final claims must be lodged by 31 December 2020.
The Federal Government passed the legislation on 23 March 2020 and it is still waiting for Royal Assent at the time of writing. The situation is changing quickly and the above information provided may change in the future.
Please contact us to find out more. The team at EMspire Advisory are experienced accountants in Sydney and would like to help you create, grow and succeed in business.
Please note that this information is not specific and is general in nature and cannot be relied upon as advice. Please contact us for specific advice for you and your circumstances.