Amid the forced closure of Australian non-essential businesses, social distancing and consumer sentiment, many Australian businesses are now facing dire financial circumstances. During the weekend of 21 and 22 March 2020, the Victorian State Government released their stimulus package and the Federal Government released a second round of stimulus measures to further expand the measures it initially introduced last week.
Having regard to the new Government measures, the various stimulus packages announced can be summarised as follows:
1. FEDERAL GOVERNMENT STIMULUS MEASURES – BUSINESS
PAYG withholding refundable credit
The Government has expanded the original cash grant stimulus measure announced last week for small businesses. Under the revised stimulus announcement, businesses with under $50M in turnover that employ staff will be eligible to receive refundable credit entitlements relating to their PAYG withholding liabilities of between $20,000 and $100,000 (the exact amount of the credit will depend on the PAYG withholding they have previously paid). For those businesses that employ staff but do not incur PAYG withholding liabilities, they will still be eligible to receive the minimum $20,000 entitlement.
The revised cash grant stimulus measure will operate via two separate phases and the timing of the refundable credits will depend on whether the eligible business pays PAYG withholding monthly or quarterly via their Activity Statements.
Quarterly remitters of PAYG withholding
For quarterly remitters of PAYG withholding, the phase one refundable credit will provide small businesses with a refundable credit equal to 100% of their PAYG withholding liabilities for the March 2020 quarter and June 2020 quarter. The refundable credit will arise on the lodgement of their March 2020 quarter Activity Statement and their June 2020 quarter Activity Statement. The phase one refundable credit will be a minimum $10,000 and a maximum of $50,000 and will be dependent on the level of PAYG withholding liability for the quarters.
Quarterly remitters will then become entitled to a second phase refundable credit which matches their total phase one entitlement. The second phase refundable credit will be credited to them (i) 50% on lodgement of their June 2020 quarter Activity Statement; and (ii) 50% on lodgement of their September 2020 quarter Activity Statement.
For example, for a quarterly remitter that is liable to pay $12,000 of PAYG withholding for the March 2020 quarter and $15,000 of PAYG withholding for the June 2020 quarter, the taxpayer will receive a refundable credit of $12,000 when they lodge their March 2020 Activity Statement, a refundable credit of $28,500 when they lodge their June 2020 Activity Statement (comprising a phase one credit of $15,000 and a phase two credit of $13,500), and a refundable credit of $13,500 when they lodge their September 2020 Activity Statement. Thus, in total, the small business will receive refundable credits of $54,000.
Monthly remitters of PAYG withholding
For monthly remitters of PAYG withholding, the phase one refundable credit will provide small businesses with a refundable credit equal to 300% of their PAYG withholding liability for the month of March 2020 when they lodge their March 2020 Activity Statement. Thereafter, monthly remitters of PAYG withholding will be entitled to further refundable credits equal to 100% of their PAYG withholding liabilities for the months of April 2020, May 2020 and June 2020. Like quarterly remitters, the phase one refundable credit will be a minimum $10,000 and a maximum of $50,000 and will be dependent on the level of PAYG withholding remitted for the quarters.
Monthly remitters will then become entitled to a second phase refundable credit which matches their total phase one entitlement. The second phase refundable credit will be credited to them (i) 25% on lodgement of their June 2020 Activity Statement; (ii) 25% on lodgement of their July 2020 Activity Statement; (iii) 25% on lodgement of their August 2020 Activity Statement; and (iv) 25% on lodgement of their September 2020 Activity Statement.
For example, for a monthly remitter of PAYG withholding that has a liability to pay $4,000 of PAYG withholding during the month of March 2020 and $5,000 PAYG withholding for the months of April 2020, May 2020 and June 2020, the taxpayer will receive a refundable credit of $12,000 when they lodge their March 2020 Activity Statement (i.e. 300% of their March 2020 PAYG withholding), a refundable credit of $5,000 when they lodge their April 2020 Activity Statement, a refundable credit of $5,000 when they lodge their May 2020 Activity Statement, a refundable credit of $11,750 when they lodge their June 2020 Activity Statement (comprising a phase one credit of $5,000 and a phase two credit of $6,750) and refundable tax credits of $6,750 when they lodge each of their July 2020, August 2020 and September 2020 Activity Statements. Thus, in total, the small business will receive refundable credits of $54,000.
This particular measure will be available to all small businesses that employed staff as at 12 March 2020.
Increasing the instant asset write-off for businesses
In last year’s federal budget, the Government increased the instant asset write-off threshold to $30,000 and made it available to any business with turnover of less than $50 million.
The Government has now announced it will increase the instant asset write-off threshold to $150,000 with the write-off being available to any business with turnover of less than $500 million.
The new measure (which will apply to the purchase of new or second-hand assets) will allow businesses to invest in many types of business-related assets and obtain an immediate tax deduction for their expenditure.
The new measure will apply up until 30 June 2020.
Increasing tax depreciation deductions for new investment assets made by business
For assets not eligible for the above treatment, the Government has announced that for purchases of new assets made by businesses with annual turnover of less than $500 million before 30 June 2021, the business will be eligible to claim an immediate tax deduction for 50% of the purchase price of the asset with the existing depreciation rules applying to the balance of the value of the asset.
Supporting apprentices and trainees
The Government has pledged to provide wage subsidies to small businesses of up to $21,000 to fund 50% of the wage of the apprentice or trainee for a period of up to 9 months between 1 January 2020 and 30 September 2020. The measure will apply to small businesses that employ less than 20 full-time employees.
Assistance for regions severely impacted by Coronavirus
The Government has announced that it has set aside $1 billion to support regions and communities that have been disproportionately impacted by Coronavirus in areas such as tourism, education and agriculture.
Providing additional protection to businesses and directors
In the updated stimulus announcements, the Government has announced they will introduce a range of temporary measures to protect businesses and directors. The measures include increasing the threshold of when a creditor can issue a statutory demand (from $2,000 to $20,000), providing relief against claims of insolvent trading against directors and deferring the actioning and issuing of Director Penalty Notices against directors for unpaid superannuation, PAYG withholding and GST of the business.
Facilitating funding within the banking sector
The Government will temporarily amend various financial regulations to ensure banks can quickly provide credit to small businesses in need of funds. Included in the measures will be the guarantee of 50% of the value of new loans made to small business with turnover of under $50M. The guarantee will apply to loans to a maximum of $250,000 and the scheme will provide a 6-month loan repayment holiday so as to defer loan repayments on these loans.
(These measures will apply in addition to those announced by Australia’s banks last week including loan repayment holidays for a 6-month period, removal of fees for the early release of term deposits and significant interest rate cuts for business loans).
2. FEDERAL GOVERNMENT STIMULUS MEASURES – INDIVIDUALS
On 22 March 2020, the Government announced it will provide a temporary Coronavirus Supplement of $550 a fortnight to new and existing income support recipients from 27 April 2020 for six months. Income support recipients will receive their usual payment plus $550 each fortnight for the six month period. The Coronavirus Supplement will be provided to income support recipients receiving:
- JobSeeker Payment
- Sickness Allowance
- Youth Allowance for jobseekers
- Parenting Payment Partnered
- Parenting Payment Single
- Partner Allowance
- Sickness Allowance
- Farm Household Allowance.
This payment will be taxable.
Expanding Eligibility and Qualification for JobSeeker payments and Youth Allowance payments
From 27 April 2020, the Government has also put expanded eligibility and qualification criteria in place for six months.
Eligibility for JobSeeker Payment and Youth Allowance for jobseekers will also be expanded to assist:
- sole traders and self-employed people. They will be able to meet mutual obligation requirements by continuing to operate their businesses.
- people caring for someone infected or in isolation as a result of contact with Coronavirus.
The Government will temporarily waive, for certain payments:
- the assets test
- the Ordinary Waiting Period (already waived until 12 June 2020)
- the Liquid Assets Waiting Period
- the Seasonal Workers Preclusion Period
- the Newly Arrived Residents Waiting Period.
Also from 27 April 2020, access to payments will become easier with a temporary removal of the requirement for an Employment Separation Certificate, proof of rental arrangements and verification of relationship status.
Two Economic Support Payments
On 12 March 2020, the Government announced it will provide an Economic Support payment of $750 to approximately 6.6 million Social Security and Veterans’ income support recipients, Farm Household Allowance (FHA) recipients, Family Tax Benefit (FTB) recipients and holders of a Pensioner Concession Card, Commonwealth Seniors Health Card (CSHC) or Commonwealth Gold Card who were eligible on 12 March 2020.
On 22 March 2020, the Government announced it would extend the eligibility for the first Economic Support payment to people who were eligible for their payment or card between 12 March 2020 and 13 April 2020 (inclusive). The Government also announced it would provide a second Economic Support payment, also of $750 to people eligible for any of the payments or cards in the first round of payments on 10 July 2020 so long as they do not receive the Coronavirus Supplement with their payment.
Changes are also being made to crisis payment entitlements to ensure people who are in financial hardship and need to self-isolate receive the support they need.
Reducing social security deeming rates
For the purposes of income testing for various Government support payments, as of 1 May 2020, the upper deeming rate for financial assets held by the taxpayer will be lowered to 2.00%, reflecting the lowering of interest rates.
Early access to superannuation
People who meet one or more of the following conditions will be able to have up to $10,000 of superannuation released before 1 July 2020 and a further $10,000 released after 1 July 2020:
- Unemployed; or
- Eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment, special benefit or farm household allowance; or
- On or after 1 January 2020:
- Have been made redundant; or
- Had working hours reduced by 20% or more; or
- If you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.
Claims for the 2020 financial year are likely to be available from mid-April by applying directly to the ATO through the myGov website (you cannot self-assess). Certification will be required to demonstrate that you meet the above eligibility criteria. On confirmation, the ATO will issue you and your super fund a determination that the withdrawal can be paid. Applications for the 2021 financial year will likely need to be made between July and September 2020 (exact dates TBA).
Individuals will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.
Reducing minimum drawdown for superannuation pensions
The Government will reduce the minimum drawdown requirement for the 2020 and 2021 financial years by 50%.
Reductions will apply as follows:
|Age||Default minimum drawdown rates (%)||Reduced rates by 50% for the 2019-20 and 2020-21 income years (%)|
|65 – 74||5||2.5|
|75 – 79||6||3|
|80 – 84||7||3.5|
|85 – 89||9||4.5|
|90 – 94||11||5.5|
This measure will have no impact on the underlying cash balance for 2019-20 and a negligible impact in 2020-21.
Retirees with account-based pensions and similar products will benefit from this measure as it reduces the need to sell investment assets to fund minimum drawdown requirements. It does not apply to other types of pensions (such as lifetime complying pensions).
There is no requirement to apply to the ATO as this relief is applied automatically. However, pension documents should be checked before reducing payments to ensure they do not force a drawdown at the standard rates. Amendments to some pension documents may be necessary to take advantage of this measure.
3. VICTORIAN STATE GOVERNMENT STIMULUS MEASURES
The Victorian premier has announced that all payroll tax paid by small businesses during the current financial year will be refunded back to the business to aid their cash flow. Furthermore, eligible businesses will not be required to pay any further payroll tax for the remainder of the 2020 financial year. The measure will apply to businesses with annual wages expenditure of less than $3M.
The Victorian Government has also announced the deferral of land tax instalments payable by small businesses with non-residential landholdings of less than $1M. Further details of the scope of this concession are yet to be released, however.
The Victorian Government has also announced that they will contribute $500M into a fund which will provide relief to those sectors of the economy that are suffering the most. The sectors applicable are yet to be defined.
Finally, the Government announced that they will waive various rental, registration and licencing fees ordinarily payable to the Victorian Government.
Further details will be announced shortly.
4. ATO RELIEF MEASURES
Last week, the ATO issued commentary regarding its willingness to provide low interest and extended payment arrangements and deferrals for businesses impacted by the Coronavirus. Taxpayers wanting to obtain these benefits will need to apply to the ATO.
We stress that the stimulus measures being introduced by Government are evolving and certain specific details are still to be released as and when legislation is released (expected to be this coming week). We will endeavour to provide further releases as and when new information is made available.
In the meantime, if you have any further questions regarding the above, please do not hesitate to contact your client service partner at Banks Group.