Before we get to the details of the second round of stimulus package, the Victorian State government has also just announced their own tax relief measures to help support business during the coronavirus pandemic.
Tax relief measures for Victoria’s State of Emergency
As of Monday March 23 the Victorian Government has announced a range of tax measures to support businesses during the State of Emergency.
- Payroll tax waived in 2019-20 for eligible businesses with taxable wages up to $3 million.
- 2020 renewable liquor licence fees waived
- 2020 land tax deferred for people that have at least one non-residential property and total taxable landholdings below $1 million
Where can I get more information? Call the Business Victoria hotline on 13 22 15 or visit the State Revenue Office website for answers to frequently asked questions.
Information for business: the second round of Federal government stimulus
Let’s take a closer look at the Australian Government’s economic response to the coronavirus, as recently announced in the second round of stimulus measures.
The Coronavirus SME Guarantee Scheme
The government is helping support the flow of credit through the economy, with a particular focus on small and medium enterprises.
What is the Coronavirus SME Guarantee Scheme? This scheme is intended to provide support to businesses impacted by disrupted cash flow. Under the scheme, the government will provide a guarantee of 50% to SME lenders for new unsecured loans to be used as working capital.
Who is eligible? SMEs with a turnover of up to $50 million will be eligible to receive these loans.
What are the terms of the loan? The Government will provide eligible lenders with a guarantee for loans with the following terms:
• Maximum total size of loans of $250,000 per borrower
• The loans will be up to three years, with an initial six month repayment holiday
• The loans will be in the form of unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan
When can I access the scheme? The scheme will commence by early April 2020 and be available for new loans made by participating lenders until 30 September 2020.
Where can I get more information? The Australian Government has released a fact sheet called Supporting the Flow of Credit.
Cash Flow Assistance for Businesses
This measure is designed to help businesses manage cash flow issues and to help them retain their employees and subsidise the wages of apprentices and trainees.
What is this assistance? The government is providing up to $100,000 to eligible small and medium sized businesses and not-for-profits (including charities), to help with operational costs such as rent, electricity, bills and staff.
Who is eligible? Small and medium businesses with an aggregated turnover under $50 million and who employ workers are eligible. Not-for-profit entities (NFPs), including charities, with aggregated annual turnover under $50 million and that employ workers are also eligible.
Example: Tim owns and runs a small paper delivery business in Melbourne, and employs two casual employees who each earn $10,000 per year. In his quarterly BAS, Tim reports withholding of $0 for his employees as they are under the tax-free threshold.
Under the Government’s changes, Tim will be eligible to receive the payment on lodgment of his BAS.
Tim’s business will receive:
• A credit of $10,000 for the March quarter, as he pays salary and wages but is not required to withhold tax.
• An additional payment of $5,000 for the June quarter, equal to 50 per cent of his total Boosting Cash Flow for Employers payments.
• An additional payment of $5,000 for the September quarter, equal to 50 per cent of his total Boosting Cash Flow for Employers payments.
If Tim begins with holding tax for the June quarter, he would need to withhold more than $10,000 before he receives any additional payment.
Under the Government’s enhanced Boosting Cash Flow for Employers measure, Tim’s business will receive $20,000. This is an additional $18,000 to support his business.
Where can I get more information? The Australian Government has released a fact sheet called Cash Flow Assistance for Business.
Delivering support for business investment
The government has announced two business investment measures designed to assist Australian businesses and to encourage economic growth in the short term.
Increasing the instant asset write-off
The government has increased the instant asset write-off (IAWO) threshold from $30,000 to $150,000 and is expanding access to businesses with an aggregated turnover of less than $500 million (up from $50 million).
When can I access the scheme? This applies from announcement until 30 June 2020, for new or second-hand assets first used or installed ready for use in this timeframe.
Example: Samantha owns a company, Sam’s Specialty Roasters Pty Ltd, through which she operates a large food processing business. The business has an aggregated annual turnover of $150 million for the 2019-20 income year. On 1 May 2020, Samantha purchased five new conveyor belts for her production facility for $40,000 each, exclusive of GST, for use in her business.
Under the new $150,000 instant asset write-off, Sam’s Specialty Roasters Pty Ltd would instead claim an immediate deduction of $200,000 for the purchase of the conveyor belts (i.e. $40,000 for each conveyor) in the 2019-20 income year, $195,544 more than under existing arrangements. At the company tax rate of 30 per cent, Samantha will pay $58,663.20 less tax in 2019-20.
Backing business investment
The government is introducing a time-limited 15 month investment incentive to support business investment and economic growth, by accelerating depreciation deductions.
What are the features of the incentive? A deduction of 50% of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost. Eligible assets include new assets that can be depreciated under Division 40 of the Income Tax Assessment Act 1997 (i.e. plant, equipment and specified intangible assets, such as patents) acquired after announcement and first used or installed by 30 June 2021.
Who is eligible for this incentive? Businesses with aggregated turnover below $500 million, purchasing certain new depreciable assets.
What assets are not eligible? The incentives do not apply to second-hand Division 40 assets, or buildings and other capital works depreciable under Division 43.
Example: J Construction Solutions Pty Ltd has an aggregated annual turnover of $200 million for the 2020-21 income year. On 1 July 2020, J Construction Solutions Pty Ltd installs a $1 million truck mounted concrete pump for use in the business.
Under the new BBI, J Construction Solutions Pty Ltd can claim a depreciation deduction of $650,000 in the 2020-21 income year. This consists of 50% of the concrete pump’s value under the new BBI ($500,000) plus 30% of the remaining $500,000 under existing depreciation rules ($150,000). This is $350,000 more than under existing tax arrangements.
At the company tax rate of 30 per cent, J Construction Solutions Pty Ltd will pay $105,000 less tax in the 2020-21 income year (30% of $350,000). This extra tax benefit is worth $14,000 to J Construction Pty Ltd over the asset’s life (at an interest rate of 5 per cent).
Where can I get more information? The Australian Government has released a fact sheet called Delivering Support for Business Investment.
Assistance for severely affected regions and sectors
The government has set aside $1 billion to support communities, regions and industries most affected during the coronavirus outbreak.
Support for coronavirus affected regions and sectors
The government has set aside $1 billion to support sectors affected by the economic impacts of the coronavirus, including tourism, agriculture and education. The fund will also be used to help businesses identify alternative export markets or disrupted supply chains.
Support for Australian airlines and airports
The government will support our airline industry with a $715 million package of relief from a range of taxes and government charges. These measures include the reimbursement of aviation fuel taxes, relief from Airservices Australia charges, a rebate for domestic aviation security and funding for regional aviation security.
ATO administrative relief
The Australian Tax Office will provide administrative relief for certain tax obligations for taxpayers affected by the coronavirus outbreak, on a case-by-case basis. This includes the ability to defer payment of certain taxes up to six months, and allowing businesses to vary pay-as-you-go instalment amounts to zero for the March 2020 quarter.
Where can I get more information? The Australian Government has released a fact sheet called Assistance for Severely Affected Regions and Sectors.
Temporary relief for financially distressed businesses
The government has provided a safety net for businesses to assist them through the impacts of the coronavirus outbreak, to help them avoid insolvency.
The elements of the package are:
• A temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.
• A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings, an increase in the time period for debtors to respond to a bankruptcy notice, and extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition;
• Temporary relief for directors from any personal liability for trading while insolvent; and
• Providing temporary flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the coronavirus health crisis.
Example: Steph, Monica and David own a small company that operates a chain of yoga studios. Social distancing measures require yoga classes to be significantly reduced in the number of participants. As a result, their company incurs more debt, to the point where it cannot meet its debts as and when they become due and payable.
Under the provisions of the Corporations Act, the three owners would be personally liable if the business took on further debt without entering an insolvency procedure like voluntary administration or liquidation.
However, during the six month period in which the temporary relief is offered, their business can continue to open their yoga studios so that they can maintain their customers and quickly resume normal operations when the crisis has passed, and continue to incur debt. When economic conditions improve, the company can pay back the debt incurred.
Where can I get more information? The Australian Government has released a fact sheet called Temporary Relief for Financially Distressed Businesses.
Information for individuals: the second round of Federal government stimulus
The second round of the stimulus also contains provisions for individuals and payments to support households during the coronavirus outbreak.
Income support for individuals
The Government is temporarily expanding eligibility to income support payments and establishing a coronavirus supplement to be paid at a rate of $550 per fortnight. This supplement will be paid to both existing and new recipients of the eligible payment categories. These changes will apply for the next six months.
Who is eligible? The income support payment categories eligible to receive the coronavirus supplement are:
• Jobseeker payment (and all payments transitioning to JobSeeker payment; Partner Allowance, Widow Allowance, Sickness Allowance and Wife Pension)
• Youth Allowance Jobseeker
• Parenting Payment (Partnered and Single)
• Farm Household Allowance
• Special Benefit recipients
Example: Leonie is in her mid-30s, with two dependent children aged 10 and 12, and works as a telephone consultant for a travel agency. The economic downturn has caused the travel agency to close down for a six month period.
Leonie is eligible for Jobseeker Payment and will receive $1,171.50 per fortnight, comprising:
• JobSeeker Payment single, with dependent child rate of $612.00 per fortnight; plus
• Energy Supplement of $9.50 per fortnight; plus
• Coronavirus supplement of $550 per fortnight.
Leonie will also receive Family Tax Benefit Part A and Part B of $483 a fortnight.
Where can I get more information? The Australian Government has released a fact sheet called Income Support for Individuals.
Temporary early access to superannuation
Individuals who are affected by the coronavirus can access up to $10,000 of their superannuation in 2019-20, and a further $10,000 in 2020-21.
Who is eligible? To apply for early release you must satisfy any one or more of the following requirements:
• you are unemployed; or
• you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
• on or after 1 January 2020:
- you were made redundant; or
- your working hours were reduced by 20 per cent or more; or
- if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.
People accessing their superannuation will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.
How do I apply? You can apply directly to the ATO through the myGov website. You will need to certify that you meet the above eligibility criteria.
Example: Rachel is a sole trader with a catering business. Due to the economic effects of the coronavirus, Rachel’s turnover for July is $5,000 compared to $10,000 on average per month for the second half of 2019.
Rachel determines that her turnover has reduced by more than 20 per cent compared to her average turnover over the last six months of 2019. She self-certifies that she is eligible for early release and applies to have $10,000 released from her superannuation.
Where can I get more information? The Australian Government has released a fact sheet called Early Access to Superannuation.
Payments to support households
The government is providing two separate $750 payments to social security, veteran and other income support recipients and eligible concession card holders. These payments will support households to manage the economic impact of the coronavirus.
When will the payments be made? The first payment will be available to eligible people at any time from 12 March 2020 to 13 April 2020. The second payment will be available to people who are eligible on 10 July 2020.
Am I eligible for the support payments? Eligibility criteria for the first and second payments are different. Please refer to the list contained within the government fact sheet below to confirm your eligibility.
Where can I get more information? The Australian Government has released a fact sheet called Payments to Support Households.
Providing support for retirees
In order to manage the volatility of the financial markets on retirement savings, the government is temporarily reducing superannuation minimum drawdown requirements, and is reducing the social security deeming rates.
Temporary reduction in superannuation minimum drawdown requirements
The reduction applies for the 2019-20 and 2020-21 income years.
Example: The value of 66 year-old Mike’s account-based pension at 1 July 2019 was $200,000. Under current minimum drawdown requirements, Mike is required by legislation to drawdown 5% of his account balance over the course of the 2019-20 and 2020-21 income years.
This means Mike has to drawdown $10,000 by 30 June 2020 to comply with the minimum drawdown requirements. Following the temporary reduction in minimum drawdown requirements, Mike will now only be required to drawdown 2.5 per cent of his account balance, that is, $5,000, by 30 June 2020. If Mike has already withdrawn over $5,000 for 2019-20, he is not able to put the amount above $5,000 back into his superannuation account.
On 1 July 2020 the value of Mike’s account-based pension is $180,000 (after drawdowns and investment losses). During 2020-21, Mike is required to drawdown 2.5% of his account balance, which is $4,500, instead of $9,000. As a result of this change to minimum drawdown requirements, Mike is able to preserve his capital while still drawing an income from his superannuation.
Changes to social security deeming rates
As of 1 May 2020, the upper deeming rate will be 2.25% and the lower deeming rate will be 0.25%. The reductions reflect the low interest rate environment and its impact on income from savings.
Example: Leslie and Brian are an age pensioner couple. They have $550,000 worth of financial assets. They hold $300,000 in a superannuation account with a conservative investment strategy which returned around 5 per cent last year.
They have invested $130,000 in a term deposit with an annual return of 1.5 per cent and hold the remainder in a cash transaction account earning a negligible rate of interest.
Under the former deeming rates, Leslie and Brian’s Age Pension would have been reduced by $65 each per fortnight. Under the new deeming rates, Leslie and Brian’s Age Pension will only be reduced by around $32 each per fortnight.
Where can I get more information? The Australian Government has released a fact sheet called Providing Support for Retirees.
A final word about the second round of government stimulus
We’ve provided a brief rundown of the new measures announced for the second round of stimulus. In this fluid and ever-changing environment, circumstances can change rapidly. We have provided links directly to the Federal Government information sheets relating to these changes, and strongly encourage you to refer to them for further details.