by Tony Rule, Partner, TAG Financial Services
There have been a number of announcements made by various government departments and industry over the last two weeks, but particularly on Friday and the weekend. The following summary brings together the main points from those announcements to the extent that they affect small and medium sized businesses.
The key message from all stakeholders is that they want businesses wherever possible to continue to employ people and to continue to operate “as normal” as much as can be done. This must be achieved in a new reality for most businesses where income will be significantly disrupted or eliminated. They are trying to build an environment where money continues to flow through the economy whilst trying to limit the movement of COVID-19.
Business owners need to act now to determine what their current cash balances are, which of the initiatives are available to them and then budget their expenditures to cover an extended period of business disruption.
Australian Federal Government Announcements
The Federal Government have released two stimulus packages (one on 12 March 2020 and the second on 22 March 2020) with measures for both businesses and individuals. We have set out below the key points for businesses under cash initiatives, tax initiatives and other initiatives.
Reduced Obligations & Cash Initiatives
Reduced Obligations – “Cash Flow Boost”
The second stimulus package announced that small and medium sized enterprises (SME’s) with turnover less than $50m will receive a tax free credit to their ATO Account of between $20k and $100k split equally over the March and June BAS’s to retain staff and continue to operate. The first credit will be based on 100% of PAYG withholding on the March 2020 BAS to a maximum of $50,000 and the second credit will be based on 100% of the PAYG withholding on the June 2020 and September 2020 BAS’s to a maximum of $50,000.
This announcement supersedes the credit of between $2k and $25k to their ATO account that was to be based on 50% of the PAYG withholding amounts on the March 2020 BAS (in the first stimulus package).
Australian Taxation Office deferrals
In conjunction with the first stimulus package, the Australian Taxation Office announced that “we will work shoulder-to-shoulder with businesses to assist them through this difficult period and do what we can to ease the pressure”.
Options available to assist businesses impacted by COVID-19 include:
- Deferring the payment date of amounts due on BAS’s (including PAYG instalments), income tax assessments, fringe benefits tax and excise by up to 6 months,
- Allowing businesses to move from quarterly to monthly lodgement of GST reporting to access GST refunds quicker,
- Allowing businesses to vary PAYG instalment amounts to zero for the March 2020, December 2019 and September 2019 quarters creating a refund of these payments,
- Remitting any interest and penalties incurred on or after 23 January 2020 relating to tax liabilities, and
- Allowing businesses to enter into low interest payment plans.
Employers will still need to meet their ongoing super guarantee obligations for their employees.
Loans
The second stimulus package also announced the Coronavirus SME Guarantee Scheme where the Government will guarantee 50% of new loans issued by eligible lenders to SME’s to get access to working capital to help them get through the impact of the Coronavirus.
Some parameters to be provided to these lenders are:
- Maximum total size of loans of $250,000 per borrower,
- Loans will be up to 3 years, with initial 6 months repayment holiday, and
- Loans will be unsecured.
Lenders still need to go through their normal credit assessment processes.
Apprentices
SME’s with fewer than 20 full time employees with one or more apprentices or trainees will be eligible to a wage subsidy equal to 50% of the wage for each apprentice or trainee for the 9 months to 30 September 2020 (first stimulus package). The subsidy will be up to a maximum of $21,000 per apprentice/trainee ($7,000 per quarter).
Tax Initiatives
Instant Asset Write-off
The instant asset write-off is immediately increased from assets acquired for less than $30k to assets less than $150k for SME’s with a turnover of less than $500m (up from a turnover of less than $50m) for assets bought and installed by 30 June 2020 – (first stimulus package).
Accelerated Depreciation
Provide accelerated depreciation for SME’s with turnover less than $500m to deduct an additional 50% of the asset cost as depreciation in the year of purchase (where is not eligible for the Instant Asset Write-off) where the assets are purchased and installed by 30 June 2021 (first stimulus package).
Other Initiatives
Distressed Businesses & Insolvency
The Government will introduce amendments to temporarily relieve financially distressed businesses by increasing the threshold at which creditors can issue a statutory demand and the time a company has to respond to that demand. They will also provide temporary relief for directors from any personal liability for trading while insolvent (to help companies deal with unforeseen events arising from COVID-19). This is from the second stimulus package.
Victorian State Government
On 21 March 2020, the Victorian Premier Daniel Andrews and the Treasurer Tim Pallas announced a $1.7b economic survival and jobs package.
The Victorian Government will provide full payroll tax refunds for the 2019-20 financial year to SME’s with annual payroll less than $3m. Payments will commence in April 2020 with the maximum refund equating to $113,975.
Those businesses will also be able to defer any payroll tax payable for the months of July, August and September 2020 to 1 January 2021.
Other initiatives include:
- Commercial tenants in Government buildings can apply for rent relief,
- 2020 land tax payments will be deferred for eligible small business,
- The Victorian Government will pay all outstanding supplier invoices within five business days,
- Liquor licensing fees for affected venues and small businesses will be waived,
- Establishing a $500m Business Support Fund to help businesses in hospitality, tourism, accommodation, arts and entertainment, and retail survive and keep people in work,
- Establish a $500m Working for Victoria fund to help workers that have lost their jobs find new opportunities and facilitate job matching to help Victorians find short-term or casual roles.
Reserve Bank
On 19 March 2020 the Reserve Bank announced initiatives to support the Australian economy during the disruption caused by COVID-19 including:
- The official cash rate has been dropped to 0.25% and will not be increased until progress is made towards full employment and inflation is in the 2-3% band.
- Provide a term funding facility to the banking system at 0.25% designed to encourage lending to SME’s over the next 3 years totaling $90b.
Australian Banking Association
On 20 March 2020 Anna Bligh, the CEO of the Australian Banking Association announced that “Australian Banks will defer loan repayments for small businesses affected by COVID-19 for 6 months”.
She also advised that “banks are putting in place a fast track approval process to ensure customers receive support as soon as possible”.
No information was provided about whether a loan to a business owner (such as borrowing on a home to help finance a business) would be counted as a loan repayments relating to small business or not.
If you have any questions, please contact us on 03 9886 0800 or via email.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).
We note that at the time of writing there is little detail associated with announcements by the various Government and Industry Bodies relating to bracing for the impact of Covid-19 on the economy. These announcements have not yet been legislated, and our inclusion of details in this document is purely based on media releases associated with these announcements. Accordingly, we take no responsibility for any difference between the comments made above and the final legislation associated with these announcements.