30 March 2020
by David Prichard
- Related topics
- Corporate Tax & Regulatory
The Federal Government has announced its third stimulus package in response to the effects of COVID-19 on the economy. This package is estimated to be worth $130 billion and is focussed on keeping people retained with their employer.
Whilst the devil is in the detail, we have sought to summarise the main aspects of the JobKeeper payments in our latest article. It is noted that Parliament will have to be reconvened to process this package and will be done so under the specially agreed quorum rules.
The JobKeeper package is a $1,500 per employee per fortnight payment to employers and is intended to last for at least 6 months (if not longer). The payment is akin to a wage subsidy and is designed to provide around 70% of the national median wage, and 100% of the median wage in heavily hit sectors such as retail and hospitality.
The payment is not adjusted to reflect higher wage earners; rather it is designed to provide employers with the ability to retain a large number of employees and will be available in respect of employees who were “on the books” as at 1 March. The payments will also apply to casuals who have been with their employer for 12 months.
Employers with an annual turnover of less than $1 billion are eligible for this subsidy, where they have had a reduction in revenue of 30 per cent or more since 1 March 2020 over a minimum one-month period relative to a comparable period of a year ago. Employers must elect to participate in the scheme (it’s not automatic) and can do so by applying online with the ATO.
Employers with an annual turnover of $1 billion or more are required to demonstrate a reduction in revenue of 50 per cent or more to be eligible. All employer types are eligible including Not for Profit entities.
The payment will be paid to employers for up to six months for each eligible employee that was on their books as at 1 March 2020 and is retained or continues to be engaged by that employer. As such, it incentivises employers to retain employees even at a lower salary. Importantly, every eligible employee must receive at least $1,500 per fortnight from the business before tax. Where an employee normally receives less than $1,500 they must receive at least $1,500 per fortnight. It is up to the employer whether they want to pay superannuation on any additional wage paid to employees.
Where employees ordinarily receive $1,500 or more per fortnight before tax, they will continue to receive their regular income according to existing workplace arrangements. The JobKeeper Payment will assist employers to continue operating by subsidising all or part of the income.
Where a business has stood down employees since 1 March, the payment will help them maintain a connection with these employees. The employee must receive $1,500 per fortnight before tax.
Payments will be administered by the ATO and will start to be issued in the first week of May, backdated to 30 March 2020.
Self-employed individuals will be able to receive the payment where they have suffered or expect to suffer a 30% decline in turnover relative to a comparable period.
On April 3, 2020 we have received further guidance on the subsidy:
- To establish that a business has faced a fall in their turnover, most businesses would be expected to identify that their turnover has fallen in the relevant month or three months (depending on the natural activity statement reporting period of that business) relative to their turnover a year earlier. This implies that comparison of Business Activity Statements (“BAS”) reporting periods is required. For quarterly lodgers (ie. January to March reporting period), it may be difficult to prove that there has been a sufficient fall in revenue over this most recent period if it is a pure quarterly comparison. We expect there to be clarity on this position on release of the explanatory memorandum including whether future periods (ie. April to June reporting period) can become subsequently eligible for the subsidy.
- Notwithstanding the above, where these particular comparison periods do not reflect the commercial reality of the current situation (eg. there may have been a one-off payment received in the current period), the Commissioner of Taxation will have scope to provide discretion to grant eligibility. There will also be some tolerance for employers who estimate a fall in revenue of more than the threshold but experience a slightly smaller fall. How the Commissioner will apply the discretion and the exact nature of the tolerance is not yet known.
- Restaurants and cafes will be able to reduce workers’ minimum hours. In addition, they can require staff to take leave with seven days’ notice. This change is part of increasing flexibility to save jobs during the Coronavirus crisis and resemble recent changes in the hotel industry where full-timers’ hours could be reduced to a minimum 22.8 hours a week and part-timers’ hours to 60 per cent of their guaranteed hours.
- The Government will provide updates on further business cashflow support in coming days which is likely to include a subsidies package in respect of rentals that is in addition to the moratoriums on evictions.
- In addition to the above, the Government has temporarily expanded access to income support payments and relaxed the partner income test to ensure that an eligible person can receive the JobSeeker Payment (this differs to the JobKeeper Payment), and associated Coronavirus Supplement, providing their partner earns less than $3,068 per fortnight, around $79,762 per annum.
NSW Stimulus Update
- Payroll tax deferrals have been extended to large businesses following measures to exempt SMEs in the state’s first package. All businesses now get a 6-month deferral.
- Rents have been deferred for six months for commercial tenants with fewer than 20 employees in all government-owned properties.
- Deferred tax on independent hotels, pubs and clubs for six months, although this is conditional on the Working for NSW fund being used to train staff.
Original Stimulus Package
If you have not already utilised the deferral options under the Federal Stimulus packages, we strongly recommend that you reach out to your ESV engagement partner to co-ordinate this for you. The ability to defer tax payments without incurring interest charges or getting previously paid tax back will significant assist cashflow in these times.
We have had significant success in obtaining deferrals for our clients at both State and Federal level, in addition to generating tax refunds of earlier paid income tax, enabling our clients to best manage their cashflows.
Foreign investment framework changes
In a separate announcement, the Federal Government have advised changes to the Foreign Acquisitions and Takeovers Act. The changes are effective from 29 March 2020 with all proposed foreign investments into Australia will require approval regardless of value or the nature of the foreign investor.
This change will be achieved by reducing the monetary screening thresholds to nil.
The Foreign Investment Review Board (FIRB) will be working with existing and new applicants to extend timeframes for reviewing applications from 30 days to up to six months.
Banks extend loan repayment deferrals
The banks have announced (via the Australian Banking Association) that they will extend the 6-month loan repayment deferral package by raising the threshold from $3 million to $10 million. The changes apply in all sectors of the economy on an opt-in basis (ie you need to contact your bank to access the deferral) and essentially provide a period where interest is capitalised.
The banks will not enforce business loans for non-financial breaches of the loan contract during this period. There are certain requirements to be eligible for the deferrals including:
- the customer has advised that its business is affected by COVID-19;
- the customer was current in terms of existing facilities 90 days prior to applying; and
- for commercial property landlords, they provide an undertaking to the bank that for the period of the interest capitalisation, they will not terminate leases or evict current tenants for rent arrears as a result of COVID19.
How we can help manage the complexity
Accessing the Federal or State stimulus packages or bank deferrals can make a significant difference to your business, however, determining eligibility for the stimulus packages is incredibly complex.
We are staying abreast of all updates from both the State and Federal Governments, so that when these stimulus packages are introduced as law, you will be armed with the necessary information to make suitable decisions for your business.
Please contact your ESV engagement partner on 9283 1666 to determine whether you can take up these opportunities.