Government Stimulus Packages – Summary 24 March 2020

Over the last two weeks, there has been announcements of 2 government stimulus packages designed to stimulate the business community and to stave off a substantial increase in unemployment in Australia. 

While the final legislation may differ slightly, the clear intention is to assist the business community and avoid or defer retrenchments and lay-offs.

The various components below won’t all be relevant to you, but some will. Also, watch this space, the second package followed only days after the first. Many believe that a third package will also follow if things deteriorate.

If you are involved in a small to medium business (SME) which is defined as on that has sales less than $50 million p.a.; then the packages are aimed straight at you.

  1. Instant asset write-off (IAWO)

If a small business buys a new or used asset costing less than $150,000 after 12 March 2020 and it is installed ready for use by 30 June 2020, the business can get an instant tax deduction for the cost of that asset. There is no need to depreciate the asset over its useful life (often 10 years) but rather you receive an instant deduction.

Importantly, this deduction will apply on a per asset basis up to $150,000 each, not in total; meaning that SME’s can write off multiple asset purchases.

  1. Accelerated depreciation

Between 12 March 2020 and 30 June 2021, SME’s and large businesses that buy new assets can claim 50% of the asset’s cost as an immediate tax deduction and then depreciate the balance of the cost over the assets useful life at normal rates.

Obviously, the SME businesses will use the $150,000 IAWO up to 30 June 2020, but after that date, a 50% instant deduction for all sized businesses is very attractive.

  1. Tax-free credit of up to a massive $100,000 for PAYG withheld from wages.

SME’s and Not-for-profits can receive a tax credit of $100,000, with a minimum credit to all employers of $20,000.

Eligible employers that withhold tax from employees’ wages will receive a payment equal to 100% of the PAYG amount withheld, up to a maximum payment of $50,000 based on the March 2020 and June 2020 BAS’s.   The ATO will automatically credit the sums through the BAS system from late April 2020 as BAS’s are lodged.

Eligible employers that pay wages will receive a minimum payment of $10,000, even if they are not required to withhold tax.

A second credit to a maximum of $50,000 will be payable in two instalments of a maximum of $25,000 each in the June and September 2020 BAS lodgements.

For monthly BAS lodgers, the timing is slightly different, but the end result is the same.

  1. Temporary early release of superannuation

Certain individuals eligible for the Coronavirus supplement and sole traders with a fall in turnover of 20% will be able to access their superannuation. They can apply to access $10,000 in the 2020 financial year and a further $10,000 before about September 2020 for the 2021 financial year. Any Coronavirus supplement withdrawal will be treated as tax-free.

Care should be exercised in utilising this option.  Most super funds will have to sell shares to release these funds to you.  With the stock markets having dropped by 40% in the past few weeks, any sale of shares will almost certainly result in a considerable loss being crystalized.

  1. Superannuation minimum drawdown rates halved for a short term.

Superannuation balances have already been reduced due to the stock market’s negative reaction to the Coronavirus crisis. The Government is helping self-funded retirees to keep their money in superannuation by halving the pension minimum withdrawal rate in the 2019-2020 and 2020-2021 financial years.

For example, a 70-year-old would normally be required to withdraw 5% of their fund per year. This will be reduced to 2.5% for the next 2 years.

  1. Support to regions and communities impacted by the Coronavirus

The federal government has set aside $1 billion to support regions and communities disproportionately affected by the economic impacts. This support includes those areas that are heavily reliant on tourism, agriculture and education.

  1. ATO support

The ATO will provide administrative relief for those who are directly affected by the virus.

  • Important – These relief options will not be automatically applied, so you need to contact the ATO to discuss the options.
  • Payment deferrals – The ATO can work with you to defer for up to 4 months some payments and vary instalments you have due, such as income tax assessments, activity statement (including PAYG instalments), FBT and excise payments.
  • Varying PAYG Instalments – If you expect a poor profit figure for the period, or even a loss, you can vary your PAYG instalment amounts down (even to $0) for the March 2020 quarter.
  • If the poor performance will affect your whole of year profit/loss then businesses that vary their PAYG instalment down (even to $0), can also claim a refund for any instalments made for the September 2019 and December 2019 quarters.
  • Remitting Interest and Penalties – The ATO says that can discuss the remitting of any interest and penalties, incurred on or after 23 January 2020.
  • Low-Interest Payment Plans – The ATO is prepared to work with affected businesses to help them pay their existing and ongoing tax liabilities by allowing them to enter into low-interest payment plans. 
  • Monthly GST credits – Allowing 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. This choice is not retrospective, so a change now will take effect from 1 April 2020.
  1. Guarantee scheme

The government will provide a guarantee of 50% of new unsecured working capital loans to SMEs with the following criteria:

  • Maximum loan of $250,000
  • Maximum term of 3 years
  • 6 months repayment holiday

The scheme will commence early in April 2020 and will be available for new loans until 30 September 2020.

  1. Wage subsidy for apprentices and trainees

For businesses employing fewer than 20 full-time employees and where the apprentice/trainee has been in training with the business from 1 March 2020; the businesses can apply for a wage subsidy of 50% of the apprentice/trainee’s wage for up to 9 months from 1 January 2020 to 30 September 2020. The maximum subsidy amount is $21,000 per apprentice/trainee.

Employers can register for the subsidy from early April 2020 and final claims must be lodged by 31 December 2020.

  1. Payroll Tax waived

 The Victorian state government has announced that businesses with annual taxable wages up to $3 million will have their payroll tax waived for the 2019-20 financial year. Payroll tax already paid will be refunded. In the 2021 financial year, eligible businesses can also defer their first quarter’ payment.

  1. Land Tax

The Victorian government will allow eligible landowners (that have at least 1 taxable non-residential property and total taxable landholdings below $1 million) to defer their 2020 land tax payment until after 1 January 2021. The tax will need to be paid in full by 31 March 2021.

  1. Temporary increase to thresholds to ease bankruptcy / insolvency threat

The Government will provide temporary increases (for 6 months) in thresholds related to bankruptcy and insolvency provisions:

  • Increase in the threshold required for a creditor to issue a statutory demand from $2,000 to $20,000,
  • Increase in response time for a statutory demand from 21 days to 6 months,
  • Increase in the threshold required for a creditor to initiate bankruptcy proceedings from $5,000 to $20,000,
  • Increase in response time to a bankruptcy notice from 21 days to 6 months,
  • Where intention to voluntarily enter bankruptcy has been notified, bar to creditors action extended from 21 days to 6 months,
  • Temporary relief from director’s personal liability for insolvent trading, and
  • Temporary power for Treasurer to relieve ASIC requirements.

These temporary increases should relieve financially stressed businesses from the fear of bankruptcy during this time.

Advice
If you need advice on the government stimulus packages, you can contact Noel May or Amanda Klye of May Klye & Associates on (03) 9585 7555 orenquiries@mktax.com.au.

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