25 March 2020
by David Prichard and Andrew Law
- Related topics
- Corporate Tax & Regulatory
The Federal Government has announced its second stimulus package to “cushion the blow” of the coronavirus on the economy. The combined packages are estimated to be worth $189 billion, or around 10% of the economy.
Whilst this package is a significant step up in the government’s response, more is likely to follow as the exact nature of the impact is understood. The summary below is the combined position across both packages.
If you’d like to understand exactly what stimulus measures your business is entitled to, please reach out to ESV – we are here to help our clients through these challenging times.
Cash Flow Boost
- Cash payments to small to medium businesses (turning over up to $50m per year) equal to 100% of tax withheld to the ATO on employees’ wages. Not for profit entities will also be eligible.
- Eligibility for the payments will generally be based on prior year turnover. All employing small businesses will receive at least $20,000 up to $100,000 split across two periods. Each period the minimum payment is $10,000 which is allocated to the first BAS lodged with the maximum payment for a period being $50,000.
- The benefit will be applied for a limited number of activity statement lodgements. The ATO will deliver the payment as a credit to the business upon lodgement of their activity statements. Where this generates a refund position, the ATO will deliver the refund within 14 days.
- Quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 to September 2020 inclusive. Monthly lodgers will be eligible to receive the payment for the lodgement months of March 2020 to September 2020 inclusive.
Expansion of Instant Asset Write-Off Eligibility
- Until 30 June 2020, the instant asset write-off thresholds have been significantly expanded for businesses with an aggregated turnover of less than $500 million as follows:
|Prior to Announcement||Until 30 June 2020|
|Aggregated Turnover Eligibility||$50 million||$500 million|
|Immediately Deductible Asset Cost||Less than $30,000||Less than $150,000|
- Applies from 12 March 2020 until 30 June 2020, for new or second-hand assets first used, or installed ready for use in this timeframe.
- In essence, this will provide a 27.5%-30% cash benefit of the cost of the asset upon lodgement of the business’s income tax return.
The announcement is silent on the interaction with other depreciation measures (eg how the measure interacts with the limits on depreciation of “luxury cars”).
Accelerated Depreciation for Larger Assets
- A 50% depreciation deduction on the asset with the remaining balance will then be depreciated as per the regular depreciation rules.
- Applies to assets acquired after announcement and first used or installed by 30 June 2021 for businesses with an aggregated turnover of less than $500 million. This does not apply to second-hand assets.
- This will provide a 13.75%-15% cash benefit of the cost of the asset upon lodgement of the business’s income tax return.
- The Federal Government will guarantee in a 50/50 partnership more lending to small-to-medium businesses starting from 1 April 2020.
- The loans can be up to $250,000 over a 3-year period with no repayments required for the first 6 months. This scheme is not available to refinancing existing facilities.
- Increased flexibility in insolvency and bankruptcy law by increasing the threshold at which a creditor can pursue insolvency proceedings to $20,000 and giving people up to six months to respond. Most significantly, businesses will be able to trade while insolvent.
Further announcements made relating to the stimulus package include wage subsidies of up to 50% on payments to new and existing apprentices and trainees.
- A temporary doubling of income support for those on the JobSeeker payment. The payment, formerly known as Newstart, will be supplemented with an additional $550 per fortnight, bringing it to a total of $1,100 per fortnight. This will also apply to, for example, sole traders who have found their work has dried up due to the coronavirus. The assets test and the waiting period have been abolished. The income test still applies.
- One off payment of $750 to certain government income support recipients.
- A further $750 payment – on top of the first one – for those on income support who are not eligible for the coronavirus payment. For example, this would include people on the aged pension or carer’s allowance. It will benefit about five million people.
- All four major banks have advised that they were going to give their mortgage customers some time off from paying their loans if they need time. What this translates to is a period of up to 6 months of no repayments with interest continuing to accrue and be capitalised onto the loan.
- Individuals are able to withdraw super up to $20,000 tax free. These will be available to those who are eligible for the coronavirus supplement as well as sole traders who have seen their hours work, or income fall, 20 per cent or more as a result of the coronavirus. The draw down will be capped to $10,000 of their super this financial year, and $10,000 next financial year.
- Retirees – For the next two financial years the minimum superannuation drawdown requirements will be cut by 50%.
- For those seeking to access the State Pension the deeming rate has been reduced in line with Reserve Bank cuts.
Australian Taxation Office (ATO) Announcement – Assistance
The ATO has announced in the wake of the government’s stimulus package that a flexible approach will be adopted in the way it handles taxpayers’ affairs over the coming months.
It’s possible to obtain deferrals of your BAS, Income Tax and FBT on application to the ATO. Please contact us to assist with these requests.
Some of the potential options available include:
- Up to six months deferral of payments due for your BAS. This includes PAYG instalments, income tax assessments, fringe benefits tax assessments and excise.
- Businesses will be allowed to vary their pay-as-you-go (PAYG) instalment amounts to zero for the April 2020 quarter. In addition, businesses can claim a refund of what they paid in PAYG instalments for the September 2019 and December 2019 quarters.
- The ATO will also look at any interest and penalties incurred on or after 23 January 2020, that have been applied to tax liabilities, and allow affected businesses to pay these existing and ongoing tax liabilities through low-interest payment plans.
As with any business a reduction in income has a negative impact on cash flow which has flow on effects and negative consequences. By contacting our office, we can liaise with the ATO on your behalf to assist with extending payment terms of any upcoming tax payments that are due. The ATO will assess each request on a case by case basis prior to granting any extended payment terms.
Importantly employers will still need to meet their ongoing super guarantee obligations for their employees.
If you have questions please contact your ESV Engagement Partner on 9283 1666.