With things changing daily [if not hourly] we will be updating this blog as new information becomes available [so save the link for future reference].

Clearly the government is getting out the cheque book to try and minimise the impact of the Coronavirus on all Australians now, and for the long term.

The government focus appears to be on keeping people in jobs while helping some of the less fortunate like age pensioners with a little extra cash [individuals we know historically tend to spend such handouts].  The measures are temporary [so no long-term impacts on the budget] and are targeted at getting things moving. With ‘business’ being a core part of the stimulus, the government package is putting faith in business owners to retain staff and invest in the things they need… keeping their businesses on track and growing.

“Our plan will back Australian households with a stimulus payment to boost growth, bolster domestic confidence and consumption, reduce cash flow pressures for businesses and support new investments to lift productivity?” the Prime Minister said.

Here is a summary of the Federal Government stimulus package:

JobKeeper Payments

Think of this payment as a subsidy to the employer from the Government to continue paying their employees.   

Each eligible employee receives at least $1,500 per fortnight [before tax].  If they were already being paid more than this amount from the employer then their income will not change although we understand they will still be eligible for these payments if hours are reduced as long as the employee is still paid the $1,500.  If they were receiving less than this amount, the employer will top up the amount paid to them to the $1,500 [before tax] per fortnight 

This is effective from 30 March 2020 and is for a maximum period of 6 months but payments able to be backdated to 1 March 2020. 

Eligible Employers 

To be eligible employers, businesses must; 

  1. have turnover of less than $1billion [which is pretty much anyone reading this blog]; and 
  2. have experienced a drop in income of 30 per cent; and 
  3. must have had eligible employees as at 1 March 2020; and 
  4. confirm that each eligible employee is still engaged by the business. 

Not-for-profits [including charities] and self-employed individuals may also be eligible for the JobKeeper Payments.   

Employers would need to register their intention to apply via the ATO website … here is the link to start the process https://www.ato.gov.au/general/gen/JobKeeper-payment/?=redirected_JobKeeper.

30% Test

We do not have certainty on how the 30% drop in income is to be calculated and we will not until the final legislation is passed [and even then we suspect the ATO will have some discretion or flexibility on how they intend to apply the test].

Information from business.gov.au suggests that there will be a number of different ways a business could establish their income has dropped by 30%, being:

  1. relevant month versus the same month last year
  2. relevant quarter versus the same quarter last year
  3. discretion of the Tax Commission to consider additional information
  4. alternative tests the Tax Commission sets [for example when a business has ceased being able to trade or significantly hindered from trading]

In my opinion, this shows common sense to include some discretion because every business and industry is different and to take into account businesses that may not have been established in the previous year.

It is also suggested that ‘some tolerance’ will be exercised if a business expects income to drop by 30% but the actual drop is ‘slightly smaller’. This is also a positive sign as it shows they are not intending to apply a ‘hard fast’ rule-based test.

Eligible Employees 

Eligible employees are employees who; 

  1. are currently employed, stood down or re-hired by the eligible employer; and 
  2. were employed as at 1 March 2020; and 
  3. are full-time, part-time or long-term casuals; and 
  4. are at least 16 years of age; and 
  5. are an Australian citizen or holder of a permanent visa or certain other specific visa holders; and 
  6. Are not in receipt of a JobKeeper Payment from another employer. 

Long-term casual is considered to be someone employed for longer than 12 months as of 1 March 2020. 

Employees who receive a JobKeeper Payment need to note that it may affect other entitlements from the Government. 

Process 

Employers are assuming a lot of the responsibility for the administration of the JobKeeper Payments.  In particular, we note the following: 

  • We know that employers are required to register their interest in applying for JobKeeper payments via the ATO website. 
  • Payments will be made to the employers with the first payment to be expected in the first week of May. 
  • Employers need to identify eligible employees on a monthly basis to the ATO. 
  • Employers must ensure the eligible employers are paid the minimum $1,500 per fortnight [before tax]. 
  • No superannuation is required to be paid on any increase paid to the employee above what they would normally be paid per fortnight bu employers can choose to pay it on the amount. 

ATO is responsible for administering the payments. 

The first payment will be received by employers from the ATO in the first week of May.

Self-employed businesses without employees 

Self-employed businesses without employees may be eligible to nominate one ‘individual’ to receive the JobKeeper Payment.  They should still register using the same link on the ATO website and provide the ABN for the business and TFN for the individual.

The Treasury documents specifically use the terminology ‘self-employed individuals’ within the definition of eligible employers.  It concerned us that they were only making the JobKeeper Payments available to ‘individual’ sole-traders rather than companies and trusts where the owners receive income by way of dividends and distributions [rather than a wage].  I don’t think this is the intention of the proposal and I am are hopeful that this will be clarified as we receive more information including legislation. 

Information on the business.gov.au website states the following:

“The intent of the JobKeeper Payment is to enable any eligible self-employed person get a wage subsidy regardless of what business structure they use, where:

  • the partners in a partnership only receive a share of profits – one partner can be nominated to receive it 
  • directors of a company only receive dividends – one direct can be nominated to receive it 
  • beneficiaries of a trust only receive distributions – one individual beneficiary (i.e. not a corporate beneficiary) can be nominated to receive it”

We hope that the above intention is reflective of the final legislation but unfortunately we cannot rely on this at this point.

The big things we don’t know 

There’s a stack of information we don’t have and criteria difficult to advise on without legislation, including: 

  1. Precisely how the 30% drop in income will be or can be calculated? 
  2. How employers are expected to be responsible for administering the system and what’s really involved? 
  3. How employers would be able to undo terminations already made [including payouts of leave]? 
  4. How employees would be treated if re-hired after applying for JobSeeker payments? 
  5. How will eligibility be determined for self-employed people who derive income by dividend or distribution? 
  6. Confirmation of whether the employers are allowed to reduce the wages previously paid to the eligible employees and still be eligible. 
  7. So much, with very little information available. 

Big Picture 

The objective is obviously to try and keep people employed.  What this will do this week, in my opinion, is delay stand-downs, layoffs and terminations … at least until we have more information.  What it wont do in my opinion is completely stop stand-downs, layoffs and terminations. 

The Detail 

For more information [even though only very little information available at this point] please see:

https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet_Info_for_Employers_0.pdf 

https://www.business.gov.au/risk-management/emergency-management/coronavirus-information-and-support-for-business/jobkeeper-payment

Employers get cash of up to $100,000

Payment will be made through the BAS/IAS process to employers with a turnover of less than $50m that employ staff as at 12 March 2020. The concession has now also been extended to not-for-profits [including charities].

Initially the Government provided up to $25,000 with a minimum of $2,000 for eligible businesses. This has now been increased to a maximum of $100,000 and a minimum of $20,000.

The payments will be made as a credit of up to 100% of the amount withheld from salary and wages [up from 50%] and will be automatically applied to activity statements starting with your March BAS.

The payment will be split though between the following periods:

  • March to June 2020 Activity Statements = minimum of $10,000 and a maximum of $50,000
  • June to September 2020 Activity Statements = a further minimum of $10,000 and a maximum of a further $50,000

The second additional payment will require the entity to continue to be active and will be delivered as a portion of the amount previously paid under these incentives in the earlier period. It will be paid as follows:

  • Quarterly Activity Statement lodgers = half of the amount previously paid on lodgement of June BAS and a half on lodgement of the September BAS.
  • Monthly Activity Statement lodgers = quarter of amount previously paid on lodgement of the June, July, August and September BAS/IAS’s.

When you work through the examples provided from Treasury it shows that the initial payment will be effective based on the wages for January, February and March 2020.

Example 1: Monthly PAYG Withholdings of more than $16,667 [and monthly lodger]

If your March BAS’s shows PAYG Withholdings of $16,667, you will receive payments as follows:

  • 28 Apr 2020 [on lodgement of Mar BAS] = $50,000 [$16,667 x 3]
  • 21 May 2020 [on lodgement of Apr IAS] = $0 [because already received max]
  • 21 Jun 2020 [on lodgement of May IAS] = $0 [because already received max]
  • 28 Jul 2020 [on lodgement of Jun BAS] = $12,500 [¼ of $ previously received]
  • 21 Aug 2020 [on lodgement of Jul IAS] = $12,500 [¼ of $ previously received]
  • 21 Sep 2020 [on lodgement of Aug IAS] = $12,500 [¼ of $ previously received]
  • 28 Oct 2020 [on lodgement of Sep BAS] = $12,500 [¼ of $ previously received]

Example 2: Monthly PAYG Withholdings of $10,000 [and monthly lodger]

If your March BAS’s shows PAYG Withholdings of $10,000, you will receive payments as follows:

  • 28 Apr 2020 [on lodgement of Mar BAS] = $30,000 [$10,000 x 3]
  • 21 May 2020 [on lodgement of Apr IAS] = $10,000 [100% of PAYGW amount]
  • 21 Jun 2020 [on lodgement of May IAS] = $10,000 [100% of PAYGW amount and max]
  • 28 Jul 2020 [on lodgement of Jun BAS] = $12,500 [¼ of $ previously received]
  • 21 Aug 2020 [on lodgement of Jul IAS] = $12,500 [¼ of $ previously received]
  • 21 Sep 2020 [on lodgement of Aug IAS] = $12,500 [¼ of $ previously received]
  • 28 Oct 2020 [on lodgement of Sep BAS] = $12,500 [¼ of $ previously received]

Example 3: Quarterly PAYG Withholdings with $6,000 PAYGW per quarter [equivalent of $2,000 per month]

If your March Qtr BAS’s shows PAYG Withholdings of $6,000, you will receive payments as follows:

  • 28 Apr 2020 [on lodgement of Mar BAS] = $10,000 [being the minimum boost]
  • 28 Jul 2020 [on lodgement of Jun Qtr BAS] = $2,000 [being that total PAYGW for the 6 months is $12k and already received $10k]
  • 28 Jul 2020 [on lodgement of Jun Qtr BAS] additional boost = $6,000 [being ½ of the total boost for the previous period]
  • 28 Oct 2020 [on lodgement of Sep BAS] = $6,000 [ ½ of total boost for the previous period]

There are more examples in the Treasury documents at https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Cash_flow_assistance_for_businesses_0.pdf

And the good news is that this payment is ‘tax-free’!

Eligibility

One thing that has been made clearer now by the government is that eligibility requires you to be ‘active eligible employers established prior to 12 March 2020’.

If you do not lodge an activity statement you will not be eligible for the payment.  There is a situation where you may not need to lodge an activity statement for your PAYG withholding and so the ATO is yet to advise on how they will treat this for the purpose of calculating your entitlement.

To be eligible you will need to be a small or medium business entity [including not-for-profit organisations, sole traders, partnership, company or trust] that:

  1. held an ABN on 12 March 2020 and continues to be ‘active’ [we interpret ‘active’ as still operating the business], and
  2. has an aggregated annual turnover under $50 million [generally based on prior-year turnover), and
  3. made eligible payments [such as wages] you are required to withhold tax from [even if the amount you need to withhold is zero], and
  4.  you must have either:
    1. derived business income in the 2018–19 income year and lodged your 2019 tax return on or before 12 March 2020 [essentially you need to have lodged last years tax return showing business income], or
    2. made GST taxable, GST-free or input-taxed sales in a previous tax period [since 1 July 2018] and lodged the relevant activity statement on or before 12 March 2020 [essentially lodged a BAS for this financial year].

How will it be paid?

The ATO has advised that ‘cash flow boost’ will first be applied to reduce any other amounts you owe on the same activity statement [for example GST].  That is, if you lodge a BAS with say PAYG withholding of $5,000 for the quarter and net GST for the quarter of $10,000 you would have a normal liability of $15,000.  Given your entitlement to the ‘cash flow boost’ this entitlement would be reduced by your entitlement of $10,000.  If you have already paid the $15,000 normal liability, you will get a refund of $10,000.  If however you haven’t paid the BAS but only lodged it, the $10,000 would offset the $15,000 liability and you now only need to now pay $5,000

NOTE: The way the measure will work is not necessarily resulting in a ‘payment’ to you but by saying you can instead keep the tax you will have already deducted from your team’s wage and or GST you have collected.

Things to think about:

  • Those of you who take dividends or distributions and don’t pay wages look like they may miss out based on our reading of the legislation and ATO website.
  • Many of you have asked if you can move wages into other entities rather than simply on-charging to related entities within your group. I would suggest based on our reading of the legislation and ATO website you will only be eligible for the one entity that directly reported wages prior to 12 March 2020.
  • We also note that the legislation includes anti-avoidance provisions which will be triggered if you do anything to try and increase your entitlement.  Any attempt to increase your entitlement will result in you getting no entitlement at all.

Temporary relief for distressed businesses [and their directors]

These changes will be significant for those distressed businesses that are worried about insolvency and bankruptcy implications.

Under the temporary rules, the Government is increasing the threshold of when a creditor can issue a statutory demand on a company from $2,000 to $20,000 [and this will be for 6 months].

The threshold for the minimum amount of debt for a creditor to start bankruptcy proceedings is also being increased from $5,000 to $20,000.

When a demand is issued against a company or a bankruptcy notice issued, if they fail to respond they are presumed insolvent or it is considered an act of bankruptcy. The time limit for both of these notice periods is being increased from 21 days to 6 months.

Insolvent trading rules have also been relaxed to ensure directors can make the right decisions rather than be worried about personal liability. Directors will be relieved of the personal liability that would be otherwise associated with insolvent trading for a period of six months.

Further information is available on the Treasury website https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Providing_temporary_relief_for_financially_distressed_businesses.pdf

Supporting lenders by guaranteeing new debts

The Government proposes the setup of the Coronavirus SME Guarantee Scheme. The scheme will provide a guarantee equal to 50% to those that lend to SME’s to support short-term unsecured loans to SME’s with the intention of increasing the willingness of banks to lend SME’s money during these times.

Other eligibility criteria can be summarised as follows:

  • Turnover will need to be less than $50million
  • Maximum loans of $250,000
  • Loan term up to 3 years
  • No repayments required in the first 6 months
  • Loans will be otherwise unsecured finance [ie no assets required to be provided]

One thing to note here is that even though you may not need to provide further security, [assuming you go to your existing lender for the additional debt] you will probably already have given them everything by way of security

Responsible lending can also be ignored for lenders providing credit to small business customers. This exemption will also be for 6 months and will apply to any credit increase or new credit for business purposes only.

RBA also announced earlier in the week a further cut in the official cash rate to 0.25% and the establishment of a term funding facility for the bank system so that banks can have access to at least $90billion in funding at a fixed interest rate of 0.25% per annum [further reducing funding costs to banks].

Further information available on the Treasury website https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Supporting_the_flow_of_credit_1.pdf

Early access of up to $10,000 from super   

Individuals impacted by the coronavirus will be able to access up to $10,000 from their super between mid-April 2020 and 30 June 2020, with potential for a further $10,000 to be accessed in the 2020/2021 financial year. These payments from super will be tax-free.

These payments will only be available to you if you meet the eligibility criteria [see link below]. Many of our business clients will not meet this eligibility criterio but we may be able to talk about other options regarding your super which will provide you with some relief.

To access your super under these measures you will need to apply via www.mygov.au and be able to certify that you meet the eligibility criteria. This will remain the same even if you have a self-managed fund [SMSF] but we emphasise, please do not just take cash from your SMSF!

To be eligible for this you need to meet one of the eligibility criteria below:

  1. You are unemployed
  2. On or after 1 January 2020 you were:
    1. Made redundant
    2. Had your working hours reduced by 20% or more
    3. Are a sole trader – whose business was suspended or has had their hours reduced by 20% or more
  3. Eligible to receive one of the following government payments:
    1. Jobseeker
    2. Youth Allowance for job seekers
    3. Parenting payment
    4. Special payment; or
    5. Farm household allowance

Further information available on the Treasury website at https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Early_Access_to_Super_1.pdf

Relief for Self Funded retirees

Self-funded retirees will have their pension minimums reduced by 50% for 2019/2020 and 2020/2021 financial years to 2% of the fund value. This measure is designed to take the pressure off anyone who doesn’t require access to their pension for personal cash flow. This will help retirees avoid selling down assets and realising losses, instead, it will allow their capital to remain in the market as it recovers.

We saw this measure work effectively during the Global Financial Crisis and we will be reaching out to our clients with their updated pension minimum requirements for the 2020 financial year.

More information available at https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Providing_support_for_retirees_to_manage_market_volatility.pdf

A massive increase in ‘instant asset write off’

As of 12th March 2020, it is proposed that the current instant asset write off threshold is increased from $30,000 to $150,000. They also propose to offer the write off to businesses with an aggregated annual turnover of up to $500 million (which is up from $50 million) but this is only until 30 June 2020.

In my view, this will definitely be enticing for businesses to bring forward expenditure into the current financial year. That vehicle, truck, machinery, or other assets you know you want can be immediately written off within the requirements. This proposal applies for new or second-hand assets first used or installed ready for use between 12 March 2020 and 30 June 2020.

A word of warning though that the saving is only the tax saving. That is, if you trade in a company and spend $100k on say a tractor, the tax saving is only $27,500. You would have always been entitled to that tax saving but this brings forward the deduction so that cashflow is aligned with tax timing.

Accelerated Depreciation to 30 June 2021 [Investment Allowance]

Unlike the instant asset write off change, the government is also encouraging investment by offering accelerated depreciation through to 30 June 2021 for businesses with an aggregated turnover of less than $500 million. This will take the form of an additional 50% depreciation of any asset purchased in the year of the purchase. Given the above this would be applicable for:

  • asset purchases greater than $150k before 30 June 2020; and
  • asset purchases greater than $1k between 1 July 2020 and 30 June 2021.

The examples from Treasury show that this 50% deduction is to be treated like an investment allowance as a reduction on the original cost which is used for additional depreciation deductions [which by the way are in addition to the 50% deduction].

Again, we remind you that the saving is only tax savings and the real benefit is pulling forward the tax deduction rather than spreading it out over a longer period under the normal rules. These rules are also effective as of 12th March 2020 if passed as legislation.

Wage subsidies for apprentices and trainees

To protect jobs of apprentices and trainees, it is proposed that eligible employers can apply for a wage subsidy equal to 50% of an apprentice or trainee wage for up to 9 months from 1 January 2020 to 30 September 2020 [extending the stimulus past 30 June 2020].

The subsidy will be available to small businesses employing fewer than 20 full-time employees who retain an apprentice or trainee. The apprentice or trainee must have been in training with a small business as at 1 March 2020.

Employers will be reimbursed up to a maximum of $21,000 per eligible apprentice or trainee ($7,000 per quarter).

Employers can register for the subsidy from 2 April 2020. Final claims for payment must be lodged by 31 December 2020

New Coronavirus Supplement Payment

The Government is temporarily expanding the eligibility for income support payments and almost doubling income support payments through the implementation of a Coronavirus Supplement Payment of $550 per fortnight.

To be eligible you must be eligible for:

  • Jobseeker payment
  • Youth Allowance Jobseeker
  • Parenting Payments
  • Farm Household Allowance
  • Special Benefits recipients

Expanded access to the income support payments and the Coronavirus Supplement will be available to those who lose their job, sole traders, self-employed, casual workers and contract workers who meet the income tests as a result of the economic downturn. Asset testing will also be temporarily waived for eligibility to Jobseeker payment, Youth Allowance Jobseeker and parenting payments. The ordinary waiting periods of one week has also been waived along with other timing reductions.

Previously many were still excluded from accessing the JobSeeker Payment [including the Coronavirus supplement] due to the income of a spouse or partner.  The Government has now announced a proposal to increase the income test to $79,762 per annum [ie this is how much your partner must be earning to exclude you from the JobSeeker Payment].

Further information is available on Treasury website https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Income_Support_for_Individuals.pdf

Payments to households and lower-income Australians [including pensioners and other social security recipients]

It was originally proposed to pay a once-off payment of $750 to eligible recipients. This will be paid automatically from 31 March.

They have now announced a second payment of a further $750 for those eligible payment recipients and concession card holders on 10 July 2020. This payment will be paid automatically from 13 July 2020.

Payments will be exempt from tax and not count to income tests.

For a full list of who is eligible for each payment see the Treasury website https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Payments_to_support_households.pdf .

Moratorium on Evictions

The State and Territory Governments have essentially agreed to ‘ban’ evictions of both residential or commercial tenancies. Banks have also announced they will provide further relief to bigger companies on loans up to $10million with a condition designed to encourage landlords to support their tenants through these tough times.

Extra support for heavily affected regions

The government is also proposing to allow $1 billion to support disproportionately affected sectors, regions, and communities reliant on such industries as tourism, agriculture, and education. It looks like this will take a few different forms from the waiving of fees and charges to helping identify alternative export markets or supply chains. We will need to watch this space with this one a little more to identify the opportunities.

Administrative support

The ATO has also announced a number of administrative concessions to ease the pressure. These will include the following:

  • Deferring by up to four months the payment date of amounts due through the business activity statement (including PAYG instalments), income tax assessments, fringe benefits tax assessments and excise.
  • Allow businesses on a quarterly reporting cycle to opt into monthly GST reporting in order to get quicker access to GST refunds they may be entitled to.
  • Allowing businesses to vary Pay As You Go (PAYG) instalment amounts to zero for the April 2020 quarter. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made for the September 2019 and December 2019 quarters.
  • Remitting any interest and penalties, incurred on or after 23 January 2020, that have been applied to tax liabilities.
  • Working with affected businesses to help them pay their existing and ongoing tax liabilities by allowing them to enter into low-interest payment plans.

More information is available at:

https://treasury.gov.au/coronavirus

https://www.ato.gov.au/General/New-legislation/The-Australian-Government-s-Economic-Response-to-Coronavirus/

https://www.ato.gov.au/Media-centre/Media-releases/Support-measures-to-assist-those-affected-by-COVID-19/

At this stage, these are only proposals and until they are legislated and receive royal assent we cannot rely on what has been announced. That said, it is proposed that some of the measures are effective immediately so we will have to watch and see how the opposition and minor parties react to the proposals however, we expect there will be full cooperations.

The government cannot solve all of our business woes so although I see the proposals as favourable and I am optimistic they will have an impact, don’t forget to review your business at a deeper level.

Other resources to help:

To see what else we recommend you consider in your business, please read our blog on what to do in your business: https://businessdepot.com.au/blog/coronavirus-not-what-the-doctor-ordered-for-business/

Read this - Queensland Government Coronavirus Stimulus Package

Read this - NSW Stimulus Package

Read this - Victoria Tax Relief for Eligible Businesses

Read this - Coronavirus: What to do in your real estate business

Read this - Navigating these times as a business owner in Real Estate

Upcoming webinar: COVID-19 Series with CCIQ

Read this - Transport still under-claiming Fuel Tax Credits

Click this - Coronavirus and your workplace

Summary of Banks Hardship Assistance

Read this - SMSF COVID 19 Concessions

COVID considerations for commercial leases and rent payments

What the Government Support/Stimulus Packages mean for real estate agencies

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Read this -People + Culture – Calm COVID Convos for SMEs

Accessing Income Support Payments – Calm COVID Convos for SMEs

If you would like to know more about how you can take advantage of the stimulus available or just don’t know where to start, reach out to us at 1300BDEPOT or oneplace@businessdepot.com.au or directly contact one of our team.