COVID-19 Government Economic Response

goverment economic response covid-19

The Government’s Economic Response to the Corona Virus

Over the past few weeks, the government has activated a series of measures designed to assist businesses and individuals through the Covid-19 crisis.

We have summarised all the key information that relates to Government’s Economic Response to Coronavirus and how it impacts your business.

Key Areas:
Cash flow assistance for business

  • Up to $100,000 to eligible small and medium sized businesses, and not-for- profits (including charities) that employ people, with a minimum payment of $20,000.
  • Up to $21,000 for businesses with apprentices and trainees. Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage paid during the 9 months from 1 January 2020 to 30 September 2020.

Support for business investment

  • Increasing the instant asset write-off (IAWO) threshold from $30,000 to $150,000 and expanding access to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.
  • 15-month investment incentive to support business investment and economic growth over the short-term, by accelerating depreciation deductions

Supporting the flow of credit

  • Government will provide a guarantee of 50 per cent to SME lenders for new unsecured loans to be used for working capital, up to $250,000 for 3 years.
  • Exemption from responsible lending obligations for lenders providing credit to existing small business customers.
  • Reserve Bank of Australia (RBA) announced a package on 19 March 2020 that will put downward pressure on borrowing costs for households and businesses.

For anyone requiring additional information or further clarity around how this will directly impact your business please contact our office immediately.

Cash flow assistance for businesses

BOOSTING CASH FLOW FOR EMPLOYERS
Summary

The Government is providing up to $100,000 to eligible small and medium sized businesses, and not-for- profits (including charities) that employ people, with a minimum payment of $20,000. These payments will help businesses’ and not-for-profits’ cash flow so they can keep operating, pay their rent, electricity and other bills and retain staff.

On 12 March 2020, the Government announced the Boosting Cash Flow for Employers measure. The measure initially provided up to $25,000 to business, with a minimum payment of $2,000 for eligible businesses. Small and medium sized business entities with aggregated annual turnover under $50 million and that employ workers are eligible.

The Government has enhanced this measure as part of the second economic response package. Not-for-profit entities (NFPs), including charities, with aggregated annual turnover under $50 million and that employ workers will now also be eligible. This will support employment activities at a time where NFPs are facing increasing demand for services.

Under the enhanced scheme, employers will receive a payment equal to 100 per cent of their salary and wages withheld (up from 50 per cent), with the maximum payment being increased from $25,000 to $50,000. In addition, the minimum payment is being increased from $2,000 to $10,000.

An additional payment is also being introduced in the July – October 2020 period. Eligible entities will receive an additional payment equal to the total of all of the Boosting Cash Flow for Employers payments they have received. This means that eligible entities will receive at least $20,000 up to a total of $100,000 under both payments. This additional payment continues cash flow support over a longer period, increasing confidence, helping employers to retain staff and helping entities to keep operating.

The cash flow boost provides a tax-free payment to employers and is automatically calculated by the Australian Taxation Office (ATO). There are no new forms required.

Eligibility – Boosting Cash Flow for Employers payments

Small and medium sized business entities and NFPs with aggregated annual turnover under $50 million and that employ workers will be eligible. Eligibility will generally be based on prior year turnover.

  • The payment will be delivered by the ATO as an automatic credit in the activity statement system from 28 April 2020 upon employers lodging eligible upcoming activity statements.
  • Eligible employers that withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 100 per cent of the amount withheld, up to a maximum payment of $50,000.
  • Eligible employers that pay salary and wages will receive a minimum payment of $10,000, even if they are not required to withhold tax.
  • The payments will only be available to active eligible employers established prior to 12 March 2020. However, charities which are registered with the Australian Charities and Not-for-profits Commission will be eligible regardless of when they were registered, subject to meeting other eligibility requirements. This recognises that new charities may be established in response to the Coronavirus pandemic.

Eligibility – Additional payment

To qualify for the additional payment, the entity must continue to be active.

For monthly activity statement lodgers, the additional payments will be delivered as an automatic credit in the activity statement system. This will be equal to a quarter of their total initial Boosting Cash Flow for Employers payment following the lodgement of their June 2020, July 2020, August 2020 and September 2020 activity statements (up to a total of $50,000).

For quarterly activity statement lodgers, the additional payments will be delivered as an automatic credit in the activity statement system. This will be equal to half of their total initial Boosting Cash Flow for Employers payment following the lodgement of their June 2020 and September 2020 activity statements (up to a total of $50,000).

This measure will benefit around 690,000 businesses employing around 7.8 million people, and around 30,000 NFPs (including charities).

Timing – Boosting Cash Flow for Employers payments

The Boosting Cash Flow for Employers payment will be applied to a limited number of activity statement lodgements. The ATO will deliver the payment as a credit to the entity upon lodgement of their activity statements. Where this places the entity in a refund position, the ATO will deliver the refund within 14 days.

Quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 and June 2020.

Monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and

June 2020 lodgements. To provide a similar treatment to quarterly lodgers, the payment for monthly lodgers will be calculated at three times the rate (300 per cent) in the March 2020 activity statement.

The minimum payment will be applied to the entities’ first lodgement.

Timing – Additional payment

The additional payment will be applied to a limited number of activity statement lodgements. The ATO will deliver the payment as a credit to the entity upon lodgement of their activity statements. Where this places the entity in a refund position, the ATO will deliver the refund within 14 days.

Quarterly lodgers will be eligible to receive the additional payment for the quarters ending June 2020 and September 2020. Each additional payment will be equal to half of their total initial Boosting Cash Flow for Employers payment (up to a total of $50,000).

Monthly lodgers will be eligible to receive the additional payment for the June 2020, July 2020, August 2020 and September 2020 lodgements. Each additional payment will be equal to a quarter of their total initial Boosting Cash Flow for Employers payment (up to a total of $50,000).

Budget impact

This measure is estimated to cost $31.9 billion over the forward estimates period.

Sarah’s Construction Business

Sarah owns and runs a building business in South Australia and employs 8 construction workers on average full-time weekly earnings, who each earn $89,730 per year. Sarah reports withholding of $15,008 for her employees on each of her monthly Business Activity Statements (BAS).

Under the Government’s changes, Sarah will be eligible to receive the payment on lodgement of her BAS. Sarah’s business receives:

  • A credit of $45,024 for the March period, equal to 300 per cent of her total withholding.
  • A credit of $4,976 for the April period, before she reaches the $50,000 cap.
  • No payment for the May period, as she has now reached the $50,000 cap.
  • An additional payment of $12,500 for the June period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.
  • An additional payment of $12,500 for the July period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.
  • An additional payment of $12,500 for the August period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.
  • An additional payment of $12,500 for the September period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.

Under the previously announced Boosting Cash Flow for Employers measure, Sarah’s business would have received a maximum payment of $25,000.

Under the Government’s enhanced Boosting Cash Flow for Employers measure, Sarah’s business will receive $100,000. This is an additional $75,000 to support her business and help her retain her staff.

Sean’s Hairdresser Salon

Sean owns a hairdresser’s salon on the Gold Coast. He employs 12 hairdressers, with average salary of $50,000 per year. Sean reports withholding of $8,788 for his employees in each of his monthly BAS.

Under the Government’s changes, Sean will be eligible to receive the payments on lodgement of his relevant BAS.

Sean’s business will receive:

  • A credit of $26,364 for the March period, equal to 300 per cent of his total withholding.
  • A credit of $8,788 for the April period.
  • A credit of $8,788 for the May period.
  • A credit of $6,060 for the June period, before he reaches the $50,000 cap. Sean will also receive an additional payment of $12,500 for the June period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.
  • An additional payment of $12,500 for the July period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.
  • An additional payment of $12,500 for the August period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.
  • An additional payment of $12,500 for the September period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.

Under the previously announced Boosting Cash Flow for Employers measure, Sean’s business would have received a total payment of $25,000.

Under the Government’s enhanced Boosting Cash Flow for Employers measure, Sean’s business will receive $100,000. This is an additional $75,000 to support his business.

Tim’s Courier Run

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 lodgement 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 withholding tax for the June quarter, he would need to withhold more than $10,000 before he receives any additional payment.

Under the previously announced Boosting Cash Flow for Employers measure, Tim’s business would have received a total payment of $2,000.

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.

Help for the Homeless Op-Shop

Help for the Homeless, a registered charity, runs an op-shop to support its programs and employs 5 part-time workers with average income of $30,000 per year. It reports total withholding of $3,510 for its employees for each quarterly BAS.

Under the Government’s changes, help for the Homeless will be eligible to receive the payment on lodgement of its BAS as it is a charity. Help for the Homeless receives:

  • A credit of $10,000 for the March quarter, the minimum payment.
  • An additional payment of $5,000 for the June quarter, equal to 50 per cent of its total Boosting Cash Flow for Employers payments.
  • An additional payment of $5,000 for the September quarter, equal to 50 per cent of its total Boosting Cash Flow for Employers payments

Under the Government’s enhanced Boosting Cash Flow for Employers measure, Help for the Homeless will receive $20,000. Under the previously announced Boosting Cash Flow for Employers measure, NFPs were not eligible for the support.

SUPPORTING APPRENTICES AND TRAINEES

Summary

The Government is supporting small business to retain their apprentices and trainees. Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage paid during the 9 months from 1 January 2020 to 30 September 2020. Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer.

Employers will be reimbursed up to a maximum of $21,000 per eligible apprentice or trainee ($7,000 per quarter).

Support will also be provided to the National Apprentice Employment Network, the peak national body representing Group Training Organisations, to co-ordinate the re-employment of displaced apprentices and trainees throughout their network of host employers across Australia.

Eligibility

The subsidy will be available to small businesses employing fewer than 20 full-time employees who retain an apprentice or trainee. The apprentice or trainee must have been in training with a small business as at 1 March 2020.

Employers of any size and Group Training Organisations that re-engage an eligible out-of-trade apprentice or trainee will be eligible for the subsidy.

Employers will be able to access the subsidy after an eligibility assessment is undertaken by an Australian Apprenticeship Support Network (AASN) provider.

This measure will support up to 70,000 small businesses, employing around 117,000 apprentices.

Timing

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

Further information is available at:

  • The Department of Education, Skills and Employment website at: www.dese.gov.au
  • Australian Apprenticeships website at: www.australianapprenticeships.gov.au

For further information on how to apply for the subsidy, including information on eligibility, contact an Australian Apprenticeship Support Network (AASN) provider.

Budget impact

This measure is expected to cost $1.3 billion across 2019-20 and 2020-21.

David’s Plumbing

David’s Plumbing is a small business that employs 10 people, including two full-time Australian Apprentices.

Taylor is a first year Australian Apprentice, aged 20, undertaking a Certificate III qualification. She commenced her apprenticeship with David’s Plumbing on 6 February 2020. Taylor receives a weekly wage of $532.89.

Lisa is a third year Australian Apprentice, aged 29, undertaking a Certificate IV qualification. She commenced her apprenticeship with David’s Plumbing on 18 November 2017. She receives a weekly wage of $772.71.

David’s Plumbing are eligible for Supporting Apprentices and Trainees which pays 50 per cent of the apprentices’ wages that have been paid by David’s Plumbing since 1 January 2020.

David’s Plumbing will receive:

  • $9,059 subsidy for employing Taylor for 6 February 2020 to 30 September 2020; and
  • $15,068 subsidy for employing Lisa for 1 January 2020 to 30 September 2020.

Delivering support for business investment

INCREASING THE INSTANT ASSET WRITE-OFF
Summary

The Government is increasing the instant asset write-off (IAWO) threshold from $30,000 to $150,000 and expanding access to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020. In 2017-18 there were more than 360,000 businesses that benefited from the current IAWO, claiming deductions to the value of over $4 billion.

The IAWO threshold

The higher IAWO threshold provides cash flow benefits for businesses that will be able to immediately deduct purchases of eligible assets each costing less than $150,000. The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets.

The IAWO is due to revert to $1,000 for small businesses (turnover less than $10 million) from 1 July 2020.

Eligibility

The Government is expanding access so that more businesses can take advantage of the IAWO. The annual turnover threshold for businesses is increasing from $50 million to $500 million. Expanding the threshold will mean an additional 5,300 businesses who employ around 1.9 million Australians will be able to access the IAWO for the first time.

Timing

This proposal applies from announcement until 30 June 2020, for new or second-hand assets first used or installed ready for use in this timeframe.

Budget impact

This measure is estimated to have a net cost of $700 million over the forward estimates. It will support business investment and is estimated to lower taxes paid by Australian businesses by $2.5 billion over the next two years.

Example 1 — Business benefits from increased asset threshold

Owen owns a company, ON Point Farms Pty Ltd, through which he operates a farming business in the Central Wheat Belt of Western Australia. ON Point Farms Pty Ltd has an aggregated annual turnover of $25 million for the 2019-20 income year. On 1 May 2020, Owen purchases a second hand tractor for $140,000, exclusive of GST, for use in his business.

Under existing tax arrangements, ON Point Farms Pty Ltd is not able to immediately deduct assets costing more than $30,000 and instead would depreciate the tractor using an effective life of 12 years. Choosing to use the diminishing value method, ON Point Farms Pty Ltd would claim a tax deduction of $3,899 for the 2019-20 income year.

Under the new $150,000 instant asset write-off, ON Point Farms Pty Ltd would instead claim an immediate deduction of $140,000 for the purchase of the tractor in the 2019-20 income year, $136,101 more than under existing arrangements. At the company tax rate of 27.5 per cent, Owen will pay
$37,427.78 less tax in 2019-20.

This will improve ON Point Farms Pty Ltd’s cash flow and help his business withstand and recover from the economic impact of the Coronavirus.

Example 2 — Business benefits from increased turnover threshold

Samantha owns a company, Sam’s Specialty Roasters Pty Ltd, through which she operates a large food processing business in Brisbane. Sam’s Specialty Roasters Pty Ltd has an aggregated annual turnover of $150 million for the 2019-20 income year. On 1 May 2020, Samantha purchases five new conveyor belts for her production facility for $40,000 each, exclusive of GST, for use in her business.

Under existing tax arrangements, Sam’s Specialty Roasters Pty Ltd is not eligible for the instant asset write-off and instead would depreciate the conveyor belts using an effective life of 15 years. Choosing to use the diminishing value method, Sam’s Specialty Roasters Pty Ltd would claim a total tax deduction of $4,456 for the 2019-20 income year.

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.

This will improve Sam’s Specialty Roasters Pty Ltd’s cash flow and help her business withstand and recover from the economic impact of the Coronavirus.

BACKING BUSINESS INVESTMENT (BBI)
Summary

The Government is introducing a time limited 15-month investment incentive to support business investment and economic growth over the short-term, by accelerating depreciation deductions.

The key features of the incentive are:

  • benefit — deduction of 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost.
  • eligible businesses — businesses with aggregated turnover below $500 million; and
  • eligible assets — 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. Does not apply to second-hand Division 40 assets, or buildings and other capital works depreciable under Division 43.

Eligibility

Businesses with aggregated turnover below $500 million, purchasing certain new depreciable assets.

Timing

Applies to eligible assets acquired after the announcement and first used or installed by 30 June 2021.

Budget impact

This measure is estimated to have a cost of $3.2 billion over the forward estimates. It will support business investment and is estimated to lower taxes paid by Australian businesses by $6.7 billion over the next two years.

Example 3 — Middle-sized business benefits from the BBI

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 existing tax arrangements, J Construction Solutions Pty Ltd could claim 30 per cent depreciation in the first year (based on the asset’s effective life of 6⅔ years).

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 per cent of the concrete pump’s value under the new BBI ($500,000) plus 30 per cent 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 per cent 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).
This will improve J Construction Solutions Pty Ltd’s cash flow and lower the after-tax cost of the concrete pump to the business.

Example 4 — Small business benefits from the BBI

Joan and Bruce own a company, NC Transport Solutions Pty Ltd, through which they operate a haulage business on the North Coast of New South Wales. NC Transport Solutions Pty Ltd has an aggregated annual turnover of $8 million for the 2019-20 income year. On 1 May 2020, Joan and Bruce purchase a new truck for $260,000, exclusive of GST, for use in their business.

Under existing tax arrangements, NC Transport Solutions Pty Ltd would depreciate the truck using their small business simplified depreciation pool. Under the pooling rules, NC Transport Solutions Pty Ltd would deduct 15 per cent of the asset’s value upon entry to the pool, leading to a tax deduction of $39,000 for the 2019-20 income year.

Under the new BBI, NC Transport Solutions Pty Ltd would instead claim an up-front deduction of 50 per cent of the truck’s value ($130,000) before placing the asset in their small business simplified depreciation pool. Joan and Bruce would then claim a further 15 per cent deduction on the depreciated value of the truck ($19,500). As a result of the two deductions, Joan and Bruce can claim a deduction totalling $149,500 in the 2019-20 income year, $110,500 more than under existing arrangements. At the company tax rate of 27.5 per cent, Joan and Bruce will pay $30,387.50 less tax in the 2019-20 income year.

This will improve NC Transport Solutions Pty Ltd’s cash flow and help Joan and Bruce’s business.

Supporting the flow of credit

CORONAVIRUS SME GUARANTEE SCHEME

Across the economy, many otherwise viable small and medium sized businesses are facing significant challenges due to disrupted cash flow. At the same time, businesses retain fixed obligations including rent, utilities, and employee expenses.

The Coronavirus SME Guarantee Scheme will provide support for these businesses. Under the Scheme, the Government will provide a guarantee of 50 per cent to SME lenders for new unsecured loans to be used for working capital. This will enhance these lenders’ willingness and ability to provide credit, which will result in SMEs being able to access additional funding to help support them through the upcoming months.

SMEs with a turnover of up to $50 million will be eligible to receive these loans.

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.

Loans will be subject to lenders’ credit assessment processes with the expectation that lenders will look through the cycle to sensibly consider the uncertainty of the current economic conditions.

As part of the loan products available, the Government will encourage lenders to provide facilities to SMEs that only have to be drawn if needed by the SME. This will mean that the SME will only incur interest on the amount they draw down. If they do not draw down any funds from the facility, no interest will be charged, but they will retain the flexibility to draw down in the future should they need to.

The Scheme will commence by early April 2020 and be available for new loans made by participating lenders until 30 September 2020.

QUICK AND EFFICIENT ACCESS TO CREDIT FOR SMALL BUSINESSES

The Government is providing an exemption from responsible lending obligations for lenders providing credit to existing small business customers. This exemption is for six months, and applies to any credit for business purposes, including new credit, credit limit increases and credit variations and restructures.

Responsible lending obligations do not currently apply to lending which is predominantly for a business purpose, but it can take time and effort for lenders to be satisfied that the money borrowed meets this test. By providing a temporary exemption from responsible lending obligations, this reform will help small businesses get access to credit quickly and efficiently.

SUPPORTING THE FLOW AND REDUCING THE COST OF CREDIT – RESERVE BANK OF AUSTRALIA

The Reserve Bank of Australia (RBA) announced a package on 19 March 2020 that will put downward pressure on borrowing costs for households and businesses. This will help mitigate the adverse consequences of the Coronavirus on businesses and support their day-to-day trading operations. The RBA is supporting small businesses as a particular priority.

The RBA has announced a term funding facility for the banking system. Banks will have access to at least $90 billion in funding at a fixed interest rate of 0.25 per cent. This will reinforce the benefits of a low cash rate by reducing funding costs for banks, which in turn will help reduce interest rates for borrowers. To encourage lending to businesses, the facility offers additional low-cost funding to banks if they expand their business lending, with particular incentives applying to new loans to SMEs.

In addition, the RBA announced a further easing in monetary policy by reducing the cash rate to 0.25 per cent. It is also extending and complementing the interest rate cut by taking active steps to target a 0.25 per cent yield on 3-year Australian Government Securities.

SUPPORTING NON-ADI AND SMALLER ADI LENDERS IN THE SECURITISATION MARKET

The Government is providing the Australian Office of Financial Management (AOFM) with $15 billion to invest in structured finance markets used by smaller lenders, including non-Authorised Deposit-Taking Institutions (Non-ADI) and smaller Authorised Deposit-Taking Institutions (ADI). This support will be provided by making direct investments in primary market securitisations by these lenders and in warehouse facilities.

AOFM’s investment will not be limited to residential mortgage backed securities. AOFM will also be purchasing assets that support small business (unsecured and secured loans) and consumer lending (including credit cards, automobiles and personal loans).

This program will assist smaller lenders, who will not benefit from the RBA’s term funding facility, to maintain access to funding and support competition in the lending market. This in turn will help keep mortgages and other borrowing costs for businesses low.

ENSURING BANKS ARE WELL PLACED TO LEND – AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

The Australian Prudential Regulation Authority (APRA) has announced temporary changes to its expectations regarding bank capital ratios. The changes will support banks’ lending to customers, particularly if they wish to take advantage of the new facility being offered by the RBA.

For anyone who requires addition information & would like to discuss the impact on their business further please do not hesitate to contact our office.

Regards,

Mace Turco

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