FEDERAL GOVERNMENT STIMULUS - Update
Tax Free Payments Up To $100,000 To Cover Your Employee Tax Withheld (Employee PAYG or the old Group Tax)
Applicable from the 28th April 2020 the Government will now provide cash flow support to business with a turnover of less than $50 million (measured on the previous year’s income).
The minimum support up to the 30th June 2020 will now be $10,000 with the maximum being $50,000. Whatever is provided pre 30th June will be the same amount of support (i.e. amount) between July to October 2020.
This increases the total cashflow support to a minimum $20,000 up to a maximum of $100,000.
Only those businesses who are established prior to 12 March 2020 qualify for this support.
You do not need to apply for this assistance, the ATO will automatically calculate the amount and credit this to your ATO integrated client account. That is, most people will not receive a cash refund, they will simply not fully pay the lodged BAS.
If the stimulus does create an integrated client credit, then the ATO will refund this within 14 days.
The support measures are divided into two phases. Please note to secure the phase 2 concession the business must continue to trade.
- Phase 1 – Employers will receive a credit to their ATO integrated client account equal to 100% of the PAYG amounts withheld from salary and wages up to the maximum amount of $50,000.
For those who lodge quarterly the credit in phase 1 will equal the wages tax deducted in the March and June Quarters.
For those who pay their wages tax monthly the phase 1 period will be the March (times 3) April, May and June.
Businesses will receive $10,000 if they employee however are not required to withhold any employee tax.
- Phase 2- The second phase will apply what employers receive in phase 1 over the BAS/IAS lodged up to October 2020. For example, if a business received credits of $40,000 in the first phase then it will receive a further $40,000 of credits in the second phase.
For those who lodge quarterly 50% of the phase 1 concession will be applied to the June and September Quarters.
For those who pay their wages tax monthly the phase 1 period will be equally divided between the June, July August and September.
Under phase 2 businesses who are not required to withhold any employee tax will receive a second $10,000.
As you can see from the above the June quarter/month appears in both phase 1 and 2. The reason for this is best explained by the following extracted example included in the Government’s Fact Sheet – “Cashflow assistance for business”
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:
i. A credit of $26,364 for the March period, equal to 300 per cent of his total withholding.
ii. A credit of $8,788 for the April period.
iii. A credit of $8,788 for the May period.
iv. A credit of $6,060 for the June period, before he reaches the $50,000 cap.
i. 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.
ii. An additional payment of $12,500 for the July period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.
iii. An additional payment of $12,500 for the August period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.
iv. An additional payment of $12,500 for the September period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.
Access to Working Capital
The Government proposes to introduce a Coronavirus SME guarantee scheme whereby they will underwrite 50% of new loans to SMEs. The threshold cap is once again $50 mill and this is measured on the previous year’s income.
There is very limited background on how this will operate and we assume it will be managed by the Banks and therefore approval will be subject to the lenders’ credit assessment processes. The Government expects lenders to look through the cycle and sensibly take into account the uncertainty of the current economic conditions.
Once again we sort clarity from those we know in the banking industry, the response being “we are having a staff meeting tomorrow and assume this initiative will be covered then”.
The loans are proposed to have the following terms:
- Maximum loan of $250,000 per borrower.
- The loans will be up to three years, with an initial six month repayment holiday (no mention of interest).
- The loans will be in the form of unsecured finance, meaning that borrowers will not have to provide asset security for the loan.
This latest measure builds on the previous capital financing initiatives, including:
- An exemption to the responsible lending obligations to enable financial institutions to provide new credit, credit limit increases, and credit variations and restructures,
- $15bn to the Australian Office of Financial Management to invest in wholesale funding markets used by small banks and non-banks to enable these lenders to support SMEs, and
- Australian Banking Association members will defer loan repayments for 6 months for small businesses (affected small businesses will need to apply for relief).
Solvency safety net
A safety net has been put in place to protect businesses in temporary financial distress as a result of the pandemic, by lessening the threat of actions that could unnecessarily push them into insolvency.
- A temporary 6 month threshold increase for a creditor’s company statutory demand i.e. from $2,000 to $20,000.
- The time a company has to respond to statutory demands has been increased from 21 days to 6 months.
- For 6 months, directors will be provided with temporary relief from personal liability, for trading while insolvent.
- Similar rules apply in regard to personal bankruptcy.
It will be more important than ever for business to stay on top of their debtors.
Debts incurred will still need to be paid and only debts incurred in the ordinary course of the business, will be subject to these measures.
Early release of superannuation
From mid-April, individuals in financial distress will be able to access up to $10,000 of their superannuation in 2019-20, and a further $10,000 in 2020-21. The withdrawals will be tax free and will not affect Centrelink or Veterans’ Affairs payments.
To be eligible to access your superannuation you need to meet 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% or more; or
if you are a sole trader - your business was suspended or there was a reduction in your turnover of 20% or more.
In summary there are no income or asset tests, simply that an employed person has experienced a 20% reduction in their salary after the 1 January 2020.
Applications will be available from mid-April 2020, with the process to access these funds being:
- Individuals will be able to apply directly to the ATO via their myGov account.
- Once the ATO has processed the application and confirmed the individual’s eligibility, they will provide both the individual and their superannuation fund with a determination.
- On the basis of that determination, the fund will then make payment to the individual.
An important factor to consider in a withdrawal decision, is whether your member balance has been substantially reduced because of recent stock market activity. That is, will the market rebound in the short term, lifting your member balance.
The minimum account-based pensions and similar products withdrawal will be reduced by 50% for the 2020 and 2021 financial years.
Default minimum drawdown rates (%)
Reduced rates by 50 per cent for the 2019-20 and 2020-21 income years (%)
95 or more
Deeming rates reduced
From 1 May, superannuation deeming rates reduced further to a lower rate of 0.25% (the 1st $86,200) and upper rate of 2.25% (funds over $86,200).
Time limited fortnightly $550 ‘coronavirus supplement’
From the 27 April eligible recipients will be eligible, for the next 6 months, to receive a new Coronavirus supplement paid at a rate of $550 per fortnight.
The supplement will be paid to both existing and new recipients in the eligible payment categories.
The supplement will be automatically paid to the following recipients:
- Jobseeker payment (and those transitioning to the jobseeker payment)
- Youth allowance jobseeker
- Parenting payment
- Farm household allowance
- Special benefits recipients
The Government is expanding the JobSeeker and Youth Allowance eligibility income support payments to:
- Permanent employees who are stood down or lose their job
- Sole traders, self-employed, casual workers whose income has reduced.
- Someone who is caring for a person affected by coronavirus.
The asset test has been waived for 6 months however the income test will still apply.
The payment is only available after the applicant has exhausted their entitlements such as annual or sick leave or income protection insurance.
To claim online, applicants who have not dealt with Centrelink, will need to have a myGov account, so their identity can be verified.
Applicants for the Jobseeker Payment and Youth Allowance Jobseeker will need to;
- Make an initial declaration about their identity, residency status, income and advise whether they have been made redundant, or had their hours reduced (including to zero), as a result of the Coronavirus economic downturn.
- In the case of sole traders and the self-employed, applicants will need to make a declaration that their business has been suspended or suffered significant turnover decline.
- Applicants may also declare the rent they pay, to assess whether they qualify for rent assistance.
- Centrelink will check the information provided to ensure the information provided is correct.
PREVIOUS ANNOUNCED BANK CONCESSIONS
The media advises any business or individual financially impacted by coronavirus should contact their bank who, on a case by case basis, can provide a wide range of assistance.
The type of assistance offered will depend on your individual circumstances, and what your financier is prepared to offer. At this stage generally the banking sector is offering:
- A deferring scheduled loan repayments for up to 6 months. Interest will still be applied to the loan balance.
- On new loans and all overdrafts interest will be reduced, however this varies per bank.
- Small business loans will receive an interest reduction, however this again varies per bank..
- Despite what the Government has suggested banks are not offering an interest free periods however it may occur for those who have been forced to close down.
- In regard to asset finance, some are deferring payments for 3 months by simply extending the contract term. There is no adjustment or added interest applied to the contract.
- Pausing home loan repayments for up to 6 months, with a 3 month review. Interest will still be applied to the loan balance.
- Reduced interest rates will apply.
As indicated above the details are sketchy and separately tailored by each bank. We also sort clarity from those we know in the banking industry, the response being “we are having a staff meeting tomorrow and assume this initiative will then be covered”.
NSW GOVERNMENT STIMULUS PACKAGE
The NSW Government announcement (17th March 2020) is very light on details with the key points being;
- Payroll tax will be waived for three months for businesses with annual payrolls of less than $10 million. This means these businesses will save a quarter of their annual payroll tax bill in 2019-20
- The payroll tax threshold increase has been brought forward to $1 million for the 2021 financial year.
- Waiving a range of fees and charges for small businesses including bars, cafes, restaurants and tradies. The details of these have not been advised and therefore are still unknown.
Given the lack of detail, one could be forgiven, for thinking the c) and the other measures were more of a marketing campaign rather than a real stimulus package.
There has not been any announcement in regard to rent relief however were able to discuss the matter with a lawyer late last night. His off the cuff advice was, that because the NSW Government passed legislation (Public Health (COVID-19 Places of Social Gathering) Order 2020- 23 March 2020) those who are in the listed industries (bars, pubs, clubs, restaurants and entertainment facilities) are within their rights to ask for rent relief. There are no information on what is generally being agreed to because this is negotiation between the parties.
For landlords lets hope the NSW Government looks at cushioning the effect of this by rebating land tax for these properties.
In addition Local Councils should also consider the position with regard to land rates, with the water utilities reviewing the position for those properties occupied by the effected industry. Remember whilst part of these charges are for services a portion relates to a base fee.
This has been compiled from an email received from Charles power – Portner Press (23 March 2020
Firstly personal leave can be used where an employee has been exposed to someone with coronavirus or is a personal carer for a family member who is ill or experiencing a family emergency.
A school close-down due to a coronavirus outbreak may meet the definition of an emergency.
It is also important, during this time employers exercise flexibility noting an employer cannot generally direct an employee to use their personal leave entitlements.
The Fair Work Act 2009 (Cth) does not provide for a position where an employee is mandated to self-isolation however is not actually ill or injured
Best practice is for the employer and employee to reach an agreement taking into consideration whether:
- The employee can work remotely or not. If they can then the employee will be paid their normal pay.
- If not, the employee should be able to access their annual leave or long service leave.
- If accrued leave has been exhausted, then they should be entitled to unpaid leave.
In a shutdown, the employer can direct the employee to take their annual leave.A shutdown is when the business has significantly reduced and during this period the business can retain an essential, skeleton workforce.
In the case of award-covered employees the business needs to give 8 weeks’ notice of the forced leave and accrued leave cannot be reduced below 6 weeks.
In NSW a business can direct an employee to take long service leave with one month’s notice.
Given the above, it is best practice for the business to reach an arrangement with the employee.
Under the Fair Work Act, an employer is permitted to stand down staff without pay where staff cannot be usefully employed, because of a work stoppage for which the employer is not responsible. During stand down periods, the employment relationship remains, however it is effectively suspended. Leave entitlements continue to accrue during the stand down period.