On 12 March 2020, the Australian Government announced their economic response to the Coronavirus, in the form of a $17.6 billion economic stimulus package. The package has been marketed as a measure to protect the economy by maintaining confidence, supporting investment and keeping people in their jobs.
The media reporting was sensational and unclear. Business owners are asking when to expect their $25,000 cash deposit. But accountants are still reading up on the Treasury reports and we must all wait until Parliament sits in late March, and legislation is released, before confirming anything. The devil will be in the detail.
In the meantime, we can provide some perspective and discourage clients from making any hasty and expensive business decisions based on what they've heard so far in the media or from family and friends.
It's important to realise that these are not massive bonuses for businesses that are tight on cash flow already. However, there may be some good tax planning opportunities.
Two key areas of the government's economic response directly impact on businesses:
- Cash Flow Assistance for Business
- Delivering Support for business investment
We also welcome news of relief from ATO obligations for businesses affected by the economic downturn, and assistance to severely affected regions heavily reliant on tourism, education and agriculture.
Full details of the assistance can be found here
Here is a summary of what businesses may access:
Note: This information is of a general nature, is not based on current law, and should not be considered taxation or financial advice.
CASH FLOW BOOST FOR EMPLOYERS
You will not receive an automatic $25,000 bank deposit. Please don't shoot the messenger.
Eligible small and medium-sized businesses with turnovers up to $50 million will receive a minimum tax-free payment of $2,000 and a maximum of $25,000 over six months.
This is equal to 50% of the PAYG withheld from salaries and wages, based on the amount of PAYG withholding declared from January to June 2020. For example, if you withhold $34,000 from January to June, then your total rebates will be $17,000. If you withhold $55,000 your rebate will be capped at $25,000.
The credit for January to March will be applied to the March BAS, for both quarterly and monthly lodgers. There is a minimum payment of $2000 for businesses that pay salary and wages, including those that are not required to withhold tax.
The ATO will automatically credit the first payment to the business upon lodgement of their activity statements from 28 April 2020, with refunds to then be paid within 14 days. We anticipate that the Tax Office will apply the credit against other tax debts.
The rebate itself is tax-free, and won't have the counter-effect of increasing tax on income.
Some clients who weren’t previously on payroll but have other staff on payroll are now thinking of putting themselves on payroll to take advantage of the stimulus. For example, business owners who get trust distributions. Sole traders and partners cannot employ themselves, so they are not eligible for this particular rebate.
Some sole traders have asked us about employing one's spouses or family members for wages under the tax free threshold as a way to access the minimum $2000 rebate. There would have to be a legitimate arms-length employment agreement, amongst other considerations.
Any potential tax saving should be weighed up against the associated increase in superannuation, Workcover, payroll tax and accounting fees that will dilute the cash flow benefit.
With Single Touch Payroll (STP) now mandatory, the ATO have real time visibility of payroll reporting and we expect some sort of anti-avoidance measures to be written into the legislation to make it harder to game the system.
- We don't recommend bumping up your wages until the law is passed and you've received professional advice
- Get your accounting records up to date this month - be ready for planning!
- Prepare a budget for the year, if you haven't already
- Prepare a cash flow scenario analysis for any increased wages (an accountant can help here)
INCREASING THE INSTANT ASSET WRITE-OFF
From Thursday 12 March 2020, the instant asset write-off threshold has been increased from $30,000 (for businesses with an aggregated turnover of less than $50 million) to $150,000 (for businesses with an aggregated turnover of less than $500 million) until 30 June 2020.
If the updated legislation is consistent, then this will also provide a write-off for pool balances (from prior year assets) that are less than $150,000 on 30 June 2020. This means some business will benefit from substantial tax deductions without needing to buy any new assets.
The intent of this economic stimulus policy appears to be about bringing forward asset purchasing decisions. If you could afford to spend up to $150,000 you were already planning to do it, right? Businesses that have considered deferring or cancelling major asset acquisitions due to economic uncertainty could be swayed by this policy.
Many business owners have pre-determined actions or committed to purchasing assets prior to 12 March; they may be considering their contracts or installation dates for those assets costing more than $30,000 (the deduction is triggered when an asset is 'installed and ready for use').
Although assets may be purchased on finance, reducing liabilities be a more pressing priority for some businesses and families. These business owners be evaluating their best split between saving, debt reduction and investment.
If you are considering purchasing assets, please consider the cashflow implications of the purchase.
The increase to the instant asset write off does not mean that you will receive a tax refund, but rather that your taxable position as at 30 Jun 2020 will be reduced due to the expense being 100% recognised this financial year. The tax effect and cashflow implications should be discussed with your accountant after the law is confirmed.
BUSINESS INVESTMENT INCENTIVE
The government is introducing time-limited 15-month investment incentive (through to 30 June 2021) which will operate to accelerate certain depreciation deductions on business assets.
This measure will also be available to businesses with a turnover of less than $500 million, which will be able to immediately deduct 50% of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost.
As announced, this measure is proposed to only apply to new depreciating assets first used, or installed ready for use, by 30 June 2021. Second hand assets, buildings and capital works are excluded.
SUPPORTING THE RETENTION OF APPRENTICES AND TRAINEES
Employers with less than 20 full-time employees may be entitled to apply for Government funded wage subsidies amounting to 50% of an apprentice’s or trainee’s wage for up to nine months from 1 January 2020 to 30 September 2020. The maximum subsidy for each apprentice/trainee is $21,000.
Importantly, where an employer is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice. Employers will be able to access the subsidy after an eligibility assessment is undertaken by an Australian Apprenticeship Support Network (AASN) provider.
It is proposed that employers will be able to register for the subsidy from early-April 2020.
ATO SUPPORT MEASURES
Administrative relief for some tax obligations for people affected by the Coronavirus outbreak will be offered on a case-by-case basis.
- Significantly affected taxpayers may be able to defer tax payments by up to four months.
- Payment dates may be deferred for activity statements, income tax assessments, FBT assessments and excise
- GST refunds may be accessed sooner with a change from quarterly to monthly reporting
- PAYG instalments may be varied to NIL for the March quarter BAS with a refund for any instalments paid for the previous two quarters
- Interest and penalties incurred on or after 23 Jan 2020 may be remitted
- Low interest payment plans may be entered into.
ASSISTANCE TO SEVERELY AFFECTED REGIONS
The Government has also committed to set aside $1 billion to support regions and communities that have been disproportionately affected by the economic impacts of the Coronavirus, including those heavily reliant on industries such as tourism, agriculture and education. This will include:
- The waiver of fees and charges for tourism businesses that operate in the Great Barrier Reef Marine Park and the waiver of entry fees for Commonwealth National Parks.
- The provision of additional assistance to help businesses identify alternative export markets or supply chains.
- Further targeted measures to further promote domestic tourism
DISCOVERY ACCOUNTANTS' BUSINESS CONTINUITY STRATEGY
We have been leveraging cloud based systems to service and support our clients for many years now. This means that our work can be conducted with no requirement for face to face contact.
Our strategy is to continue to support and assist our clients remotely and we expect that any interruption to our business operations would only be triggered if one of our staff became unwell. In this situation, we have staff capacity to ensure that work can be undertaken by another member of our team, and that there is no disruption to our client deliverables.
We do, at times, have a requirement to meet with our clients for service delivery, and with the rapid global spread of Coronavirus, our focus first and foremost is on the safety of our employees.
With this in mind, and in line with our legal obligations and official guidance from relevant authorities, we have decided to suspend face to face contact with clients unless the requirement is critical.
All our staff will be available for phone advice or via Zoom video conferencing and we do not expect that there will be any disruption otherwise to our services.
For information in regards to best practice, we are relying on the following sources of information:
The next few months are going to be challenging for businesses and individuals in Australia, and across the world. If you have any questions about the government assistance packages being provided to business, please contact us.